Amendments Nos. 43 and 45 are related and may be discussed together.
Finance Bill 2017: Committee Stage (Resumed)
I move amendment No. 43:
In page 39, between lines 7 and 8, to insert the following:
"Losses forward for financial institutions
22. The Minister shall within 6 months of the passing of this Act, prepare and lay before the Oireachtas a report on the potential impacts on restricting loss relief brought forward for financial institutions in Ireland.".
This proposal relates to bank losses and deferred tax assets the banks are holding. There was some discussion on this yesterday with Deputy Burton, where reference was made to the provision in the National Asset Management Agency Act 2009 of a restriction limiting the amount of trading losses incurred by a NAMA-participating bank that could be set off against future trading profits. The set-off was limited to 50% of the profit in any given year but, in the Finance Act 2014, the Minister's predecessor removed that restriction. Our awareness of the current position of the banks comes from their published accounts. As at June 2017, Bank of Ireland's deferred tax assets included an amount of €1.251 billion in respect of tax losses available to relieve future profits from tax. AIB, at December 2016, had deferred tax assets of €2.928 billion. In its 2016 annual report, Permanent TSB showed a deferred tax asset on tax losses carried forward of €373 million. This equates to tax losses of some €2.98 billion and the estimation is that it will take 22 years for those losses to be utilised. We heard similar estimates from the other banks when their representatives appeared before the committee recently.
What is the Government's position on this issue, with specific reference to the change introduced in 2014? Is the Minister holding the possibility of a potential change to the provision as a stick he may use in his dealings with the banks concerning the tracker mortgage issue? Is it one of the weapons he hinted he might use in the event the banks do not meet their responsibilities in this regard? I am well aware that trading losses carried forward are an important feature of our corporation tax code. However, the circumstances here are truly exceptional and the provision does, therefore, warrant examination. Will the Minister comment on the capital position of the banks in which we own shares? Has an analysis been done, for example, of what a change in the existing provision would mean for them from a capital perspective? As I understand it, these deferred tax assets are recognised as core tier 1 capital. As such, has the Department done an assessment of whether or not a change which impacted on the figures might require the State to stump up more capital to put into the banks? I would want to see that analysis before making any decision on this issue.
My amendment No. 45, like Deputy McGrath's amendment, relates to the carrying forward of bank losses. I have been raising this issue since 2014, when the then Fine Gael-Labour Party Government decided to change the provision which allowed for only 50% of losses to be carried forward. That provision was a deliberate inclusion in the NAMA Act 2009 by the then Minister, the late Brian Lenihan, who made the point when he introduced it in the Seanad - the Minister and I were both in that House at the time - that it was necessary because of the magnitude of bank losses that were being recorded. It was important, Mr. Lenihan noted, that these banks should start to pay a proportion of tax as soon as possible. Limiting the carrying forward capacity to 50% of losses showed the then Minister's foresight. He knew the banks would enter into profitability at some point and that if the standard 100% carry forward of losses in our tax code applied, then the banks would not be paying tax for decades. He did the right thing at that time.
However, the then Government decided to change that provision in 2014. I am not immune to the reasons this was done. Deputy McGrath referred to core tier 1 capital ratios and the fact that if the change was not made, some of the banks, including the pillar banks, may have needed to raise additional capital . If they had been unable to raise it in the markets, it might have fallen to the Government to stump up more, which would not have been palatable to the Irish public.
However, we are now in 2017 and in a position where all of these banks have returned to profitability. AIB is on course to record a profit this year of €1.5 billion and to be one of the most profitable banks in Europe. Bank of Ireland made a profit of €1 billion last year and Permanent TSB entered into profitability last year, although it slipped back a little in the first six months of 2017. Taking AIB and Bank of Ireland, their combined profit of €2.5 billion would require a payment of €300 million if they had to pay corporation tax. They are paying nothing, however, because they are able to carry forward their losses. AIB told us it would be 20 years before it starts paying taxes and Permanent TSB said it would be in excess of 20 years before it began making payments. The Bank of Ireland delegates indicated that it will be quite a number of years before their bank pays tax in the State. These banks have played fast and loose with Irish people's money. They have deprived Irish families of their homes and their futures, which has had an impact on individuals' sense of well-being and mental health. We are all familiar with this from the tracker mortgage scandal and many other scandals over the years.
The core issue here is the question of why the Government has not re-introduced the provision in the 2009 Act which was intended to be there for the duration of the banks' losses. That restriction was not intended by Brian Lenihan to operate for only a year or two. The late Minister knew the banks were never going to make a profit for a number of years. The provision was introduced with an eye to the situation we are in now, and the Late Mr. Lenihan knew we would reach this point some time in the future. The Minister, Deputy Donohoe, will talk about the bank levy but that is not the same. It is not based on profitability and is wider in its application than those institutions which have the major losses. One can argue that this is about deferred tax and the banks will end up paying the tax at some stage, when the losses are all used up. If we reverted to the 50% provision, we would just be allowing the banks to continue paying their losses over a longer period of time. The point is that we need the taxes now, not in 20 years time. We do not know what circumstances will prevail in the State in two decades but we do know we could use this revenue now to address the serious crises in health and housing. I strongly commend these amendments, which are merely seeking a report on this issue, incorporating the pre-2014 capital position.
Loss relief is a standard feature of corporate tax regimes worldwide. Under the Irish corporate tax regime, losses incurred in the course of a business are allowed to be taken into account in calculating the appropriate amount of tax due by companies. Loss relief recognises the fact that business cycles run over a longer period than just a single year and that it would be inequitable to tax profits in one year and not allow loss relief in the next.
Under existing loss relief provisions in the tax Acts, any unrelieved trading losses of a company for an accounting period may be carried forward for offset against trading income of the same trade in future accounting periods. Alternatively, a company may claim to have the loss set off against profits of any description for the same accounting period in which the loss was incurred or of an immediately preceding accounting period of the same length. The provision of relief for such losses is a standard feature of our tax code and of the tax codes of all other OECD countries. It would be difficult to justify the taxation of business profits without also taking due account of business losses.
As both Deputies have acknowledged, under the National Asset Management Agency Act 2009 a new section, section 396C, was inserted into the Taxes Consolidation Act 1997. The provision limited the amount of prior year losses that a NAMA participating institution could offset against trading profits to 50% of trading profit for each accounting period. It should be noted that it did not disallow any tax losses from being utilised but instead lengthened the period over which they could be used. In 2013, the Minister for Finance decided it was appropriate to remove the restriction on relief for losses in participating institutions with effect from accounting periods beginning on or after 1 January 2014. This was done against the backdrop of the introduction of new capital rules.
The removal of the restriction has protected the carrying value of deferred tax assets at the banks in which the State has a significant stake, thus improving capital ratios under the new Basel III rules and consequently increasing the value of the State's investment. The removal of section 396C enabled the banks to absorb their losses over a shorter timeframe than would be the case with a 50% limit in place. While corporation tax will not be payable on the banks' trading profits until their losses are fully absorbed, the net effect of the measure in terms of tax receipts is one of timing. This will be offset by an improvement in the valuation of the State's equity stakes in the banks as well as its debt investments, while the risk to the State as backstop provider of capital is also reduced. Rather than interfere with the deferred tax assets by changing tax policy, the Government has ensured a contribution from the sector by introducing a bank levy which has been payable since 2014. This provided an annual contribution of approximately €150 million to the Exchequer for the period from 2014 to 2016. In budget 2016, the payment of this levy was extended until 2021. It is anticipated that the bank levy will raise €750 million over five years.
To deal with each of the amendments in turn, it is important to acknowledge that they are different even though they are grouped together. Deputy McGrath's amendment seeks to outline what the impacts could be of restricting loss relief, whereas the amendment tabled by Deputy Pearse Doherty seeks to examine what options there would be for going ahead and doing it. From a policy perspective the first amendment asks me to outline what the consequences would be of pursuing a policy while the second amendment more clearly reflects the view of Deputy Pearse Doherty that this is a policy direction the Government should take. The strong advice I have received is that any indication that we are going to change the taxation status of the deferred losses would have an effect on other objectives we are seeking to fulfil with the banks in terms of what we want the future capital position to be and the ability of the State to recover the investment the Irish taxpayer has made in those banks.
I do not have any intention of changing how we tax the deferred losses in the Irish banking system because I believe there would be consequences that would make it difficult for me to fulfil other objectives that the House and the Irish people want me to fulfil in respect of the Irish banking code. If the committee wants me to refer back to it at a later point and outline the consequences of such a policy action I am willing to do so. Deputy Michael McGrath asked me a direct question about the capital consequences of doing this. I do not have that information with me today. I have asked my officials to check whether such a piece of work has been done, so I will have to refer back to the committee on that. However, I wish to emphasise that from my perspective changing how we tax what are referred to as "assets" would have other consequences for which I would be held responsible by the committee. My firm view is that the medium-term response to how we deal with this issue is the maintenance of the bank levy. If the committee wants me to outline what would be the consequences of other courses of action I will do that.
I accept the principle of carrying losses forward in the corporation tax code. It is an important aspect of our corporation tax system and it should be preserved. There are exceptional circumstances here and that is why the issue must be examined. The reason I framed the amendment as I did is to tease out what the consequences would be of making a change. It is a timing issue but it is a timing issue over a long horizon of more than 20 years in certain cases. When the Minister made his statement on the tracker mortgage issue he said that one of the possible policy measures available to him was amending tax law in a targeted way. Is he clarifying this morning that he was not referring to possible changes to the treatment of deferred tax assets in respect of the banks and the carrying forward of losses and that he was only referring to the bank levy when he made that reference? Second, what commitment is the Minister giving with regard to the consequences for the capital position of the banks? Can a paper on that be forwarded to this committee so we can examine what the consequences would be of the impact on deferred tax assets and then the impact on the capital position and a possible call on the Exchequer for additional capital? I would like to see that analysis.
At this point in time I am referring to the bank levy, for now. On the second question, I will ask my Department to prepare a paper laying out the consequences of such a course of action. However, I wish to make it clear that the policy outlook I will adhere to is the maintenance of the bank levy. I believe that is the best course of action open to me at present to allow me to realise other objectives in respect of the banks in which we have shares. While I will refer back to the committee with figures relating to what the consequences of other courses of action could be, I wish to do so in the framework of also indicating to the committee that my perspective is that the bank levy continues to be the appropriate tool of raising additional tax revenue.
First, if we had the ability to table amendments that would impose a charge on the State or the public purse I would not have drafted amendments to provide for a report. I and my party want the Minister to revert to the pre-2014 position. I do not want the Minister to justify the fact that AIB will pay no taxes for 20 years and Permanent TSB will pay no taxes for 22 years. Some of these banks are recording €1.5 billion in profit. Bank of Ireland will not pay any taxes to the Irish State for a number of years. The public wants those banks to start paying their taxes and they want those taxes used to fix the health service and the housing and homelessness crisis. They want the banks and bankers to start paying fair taxes.
That is why I am pressing amendment No. 45. I want an informed discussion and debate and the report would allow us to do that. The options will include all of those issues, but I want to steer the Parliament in a direction such that we no longer tolerate a situation whereby a bank that records €1.5 billion of profit in 2017 does not pay a penny of tax to the State.
Like Deputy McGrath, I value the issue of losses being carried forward. I have not argued for that to be taken out of the tax code. However, I have argued against the position resulting from the NAMA Act 2009, put in place by the late Brian Lenihan. Obviously there was pressure at the time because of the bailout of the banks and a massive guarantee had been issued to the banks at the time. The then Minister had the foresight to see that these banks were going to be profitable at some point in future and that they needed to start paying their taxes as quickly as possible.
The 2013 situation no longer arises. Representatives from Allied Irish Banks appeared before the committee and I questioned them on the matter. They referred to the fact that if they did not have this provision in 2013, and taking effect in 2014, there would be need for additional capital. However, they also confirmed that if we went back to the 50% figure, there would be no requirement for additional capital to be raised. Moreover, even if additional capital were to be raised, those banks are likely to be able to raise that capital on the international markets instead of drawing from the public purse.
This is why I am pressing amendment No. 45. The Minister is saying that he will give us the information, but he is not going to change his position. The Minister is doing that deliberately and I understand why he is doing it. He is sending a clear signal to the markets, potential investors and the banks to the effect that everything is fine and not to worry, and that as long as Fine Gael is in government, they will be able to continue not paying taxes on the massive profits they make for the coming 20 years. The Minister is signalling to the bankers that Fine Gael has their back and that the party is for opportunists. I am saying that is wrong. There is no point in the Minister providing information to us but then saying he is not going to change his position.
Amendment No. 45 tries to allow members present to decide whether it is the right course of action to allows banks in the State that have been bailed out with tens of billions of euro of taxpayers’ money to pay no taxes for the next 20 years. We can decide through a vote that this situation needs to come to an end. We can have an options paper within six months on how to bring it to an end and it will include all the information that has the effect of the capital allowance. From there, we can make the decision on which option is preferred.
I wish to make an additional point. I accept the logic of companies being able to bring losses forward for the reason outlined by the Minister. He suggested that it does not take place over one year, etc. However, the Minister seems to be studiously avoiding the point that in this case these were not the banks' losses, but public losses. The public paid for these first time around. By the time we head for the 20-year mark, it will be a post-privatisation scenario if the Government and Fianna Fáil, presumably, have their way. That will mean the public effectively will pay again in terms of not getting tax. It is a double bailout for the banks paid for by the taxpayer. This is not a normal situation. It is an extraordinary situation because of the bank bailout. That is the reason for the call for the Minister not to respond by simply saying that the rules operate in this way because this is not a normal situation.
It is important to acknowledge that there is a difference between these two amendments, even though they are being grouped together. Deputy Doherty's perspective is interesting because he is saying that before I supply the information, he has already decided the policy outcome.
I got the information from AIB. That is what I said.
That is not what Deputy Doherty said.
Deputy Doherty said a moment ago that he has decided what the policy outcome is on the basis of his views and the information available to him, including his engagement with a single bank. I have other considerations to bear in mind as well apart from the view of a particular bank. Given Deputy Doherty's understandable focus – it is one I share – in trying to have evidence, facts and views available to him before he reaches a policy view, I would have thought that a consistent position would be to allow me to spell out in the coming period the consequences of a move like this.
That is not what Deputy Doherty is asking me to do with this amendment. He is saying this is what he wants to happen, as he has already said. The main interest of my party is not, as Deputy Doherty suggests, to look after the interests of the privileged few. My objectives fall into two different areas. First, I want to ensure taxpayers have a path to get back the money invested in these banks. I thought Deputy Doherty had a similar view. I want to ensure that we get back all of the €28 billion invested in the banks and I hope Deputy Doherty shares that view – I believe he does. The advice and information available to me suggests the maintenance of the bank levy in the medium term and the ability for us to regain the investment over time. If the Government decides to dispose of its shares in those banks, we can then have a debate on what we do with the proceedings of those disposals. The path to regain that money is best served by indicating that we believe the current tax policy is the appropriate one.
I reiterate the point in respect of what Deputy Murphy said. I want taxpayers to get their money back and I want to ensure the money we have invested in those banks comes back to us. While these banks have returned to profitability, it is a return to profitability after many years of losses. Otherwise, I would not be in this situation or dealing with the questions that Deputy Murphy is putting to me. I am keen to ensure that as soon as possible we have a banking system that is capable of meeting the other needs of people. At a bare minimum, this includes handling and resolving promptly issues relating to tracker mortgages, which I expect to see happen in the way I have outlined before. The system must also be capable of meeting other needs in terms of being able to provide the right levels of credit to small and medium-sized enterprises as well as for investment opportunities and purchases that families want to make throughout the length and breadth of the country.
These are the reasons that the course of action I outlined on budget day and again today is the best one to take. I can outline to the committee the consequences of an alternative approach. However, I want to do that clearly in the spirit of saying that I believe the course of action I have outlined in recent statements is the right one. I would be willing to outline to the committee the perspectives and figures that are available to me and that indicate why this is the right thing to do.
I am pressing my amendment.
I do not believe there is too much distance between the various arguments being made around the table. Perhaps it might be helpful to look at some principles. One of the first principles relates to someone who is earning a good deal or has a business making a large profit. If that business is a key domestic business, such as banking, and it is profitable on a current basis notwithstanding a history of losses, then it should contribute. That should apply notwithstanding the extraordinary history of the collapse of the banks and their extraordinary behaviour, which contributed to that collapse. I presume we can agree that this is what the common good requires as well as common decency and any notion of fairness or equality. All of these aspects are fairly accepted principles in a good taxation system. The Minister has indicated that he broadly supports such a system.
Essentially what we are talking about here, in the context of Irish law, custom and practice, as referred to by the Minister, is the recognition of losses. What this is doing is restricting the ability of the banks to avail of the losses over time, or indefinitely, as is now the case now, and for as much loss as has accrued, and without any recognition - because it would probably be very difficult to apply it to all businesses - of whether they were at fault in any way regarding the creation of these losses.
Previously when I was in opposition and the late Brian Lenihan was in government, we came to an agreement that there should be a restriction on the ability of very high-net-worth individuals to use losses here and now so that, in the current period and not the indefinite future, they would have to make a minimum contribution. The reason for that was very simple. A series of reports was produced by the Revenue Commissioners on my request to show there were people with incomes in excess of €500,000 and €1 million. It sounds like much more innocent days because those sums were considered to be a great deal ten or 15 years ago. The agreement was that the individuals concerned could not end up paying zero tax while those working in their houses, estates, farms or stud farms would be paying tax on a much more modest weekly income. The Government at the time in question agreed to increase the levy, as the Minister knows. His officials will say the agreement was very successful. Did it result in a flight of people from Ireland? Did it result in a collapse of their enterprises? If their enterprises collapsed, it was not because of the agreement but it was a matter of basic equity.
If the Minister examines the history of this — he said he will revert to the committee on this — he will note it is very offensive to somebody who is going to take the new Luas through St. Stephen’s Green to point to the Bank of Ireland, tot up what it cost people in this country, notwithstanding that it is in recovery mode, and say it is great and that while it is currently making €0.5 billion in profit, it will, I am sure, be making a profit well beyond €1 billion in a couple of years. The same will be said about AIB. It is very difficult to understand. Losses do not matter when profits are not being made because the banks have nothing to claim against. That is why the argument is only gaining ground now and why we are only understanding it now. I discussed this matter when in government and I am not going to talk about the details of the discussions. The levy, which the Labour Party put forward, is still a lesser mechanism than actually restricting the use of the losses.
On grounds of broad business efficiency in the economy, the hangover from the losses is wrong. It is wrong from the perspective of other people in business, perhaps competing with the same banks or perhaps having an interest in providing services, that the banks have this extraordinary leeway.
At a minimum, the reports should be produced but the Government should also consider my proposal actively. It is a bit of a warning shot across the banks' bows but it also tells the people who bailed them out collectively and ensured much hardship and many reductions that there is some notion of fairness, equity and horizontal equality in the Irish tax system that addresses the matter of significant earnings. We can pick a figure. We could create a company earnings threshold of €200 million, for example. With regard to the indefinite hangover, we have been talking about using or losing development land. It is wrong, at a time when we need significant funds to fund the kinds of services we expect and, more particularly, the infrastructure we need to remain competitive after Brexit, that they are not being asked to make a contribution. Their not doing so makes them feel like masters of the universe all over again. Hence, they do not feel obliged to treat their customers with the kind of sensitivity and understanding the Minister is displaying towards them because of what they experienced. Their former leadership was much more culpable than an ordinary person who bought a mortgage in good faith and went into debt. At times, the banks suggested to couples that they hold on to their existing apartment and let it, with the result that they ended up with the nightmare of being accidental buy-to-let landlords in the market.
I welcome the fact that the Minister sounds open to discussing and examining this. I do not believe it is difficult for the Department to support the production of the reports. If the Minister has an alternative basis on which a report might be produced - he might bring it to us on Report Stage - I, for one, would certainly be prepared to consider it. It relates to an important issue concerning principles in the Irish tax system.
I will make two points in response to Deputy Burton. We have debated this before. I have exchanged views on the matter with the other Deputies here this morning. The banks to which the Deputy is referring and that are the subject of this debate are banks in which the Irish taxpayer has an investment or equity of between €11 billion and €11.5 billion, as she well knows. One of the greatest contributions I can make back to meet the needs of the taxpayers who supported the banking system at a time of crisis is to get their money back. The Irish State had to borrow to put money into the banks. Our national debt, as a result, is higher than it should be. I want to get the money back. The Deputy has a different view on what we should do with the money when it comes back, as was the case when receiving some back from the disposal of the share in AIB. The Deputy has put a different case forward regarding how it should be invested. I believe the right thing to do was to put the money we got towards paying back the additional debt we incurred as a result of having to put money into the banks.
My assessment and recommendation to the Deputy today is that if she shares my view on trying to get the money back and also on some of the other points she touched upon, such as the need for more investment in infrastructure, we should use the banking levy as I propose. We know we need our banking system supplying more credit to allow more homes to be built, for example. We know issues arise over the pricing of products within Ireland by comparison with other countries we might compare ourselves to. I want to see improvements and changes in this regard. When I consider all the competing objectives, my assessment is that the best course of action for us, up to 2021, is to use the banking levy as a way of regaining revenue and getting value back for the taxpayer, as opposed to what Deputy Doherty is asking me to do today.
I repeat what I indicated earlier, namely, that while I am not going to indicate I am changing my policy direction on the banking levy, I will revert to the committee. Perhaps we can deal with this matter on Report Stage and outline the consequences of alternative courses of action. Based on my understanding of those consequences, I believe the retention of the banking levy is the most sensible option to allow us to get money back while also delivering on the other objectives I know the Deputy would want me to achieve for our banks.
I thank the Minister. How stands amendment No. 43?
I withdraw the amendment.
How stands amendment No. 44?
We have not discussed it yet.
We have discussed amendment No. 45. Is the Deputy moving amendment No. 44?
I move amendment No. 44:
In page 39, between lines 7 and 8, to insert the following:
"22. The Minister shall within 3 months of the passing of this Act, prepare and lay before Dáil Éireann a report in relation to the tax neutral status available to Section 110 companies that are involved in loan origination businesses, which examines removing this tax neutral status."
This amendment relates to another report on the tax-neutral status available to section 110 companies which are involved in the loan origination business in order to examine the removal of this status. In the Finance Bill 2016, changes were made to the section 110 regime. We saw these changes brought in and they were welcome, but there was a carve-out built in with regard to non-bank landers involved in the loan origination business. This means that non-bank lenders with hundreds of millions lent to Irish businesses, and with profits in the millions, could continue to pay tax of as little as €250 per year.
Let us look at an example of one such lender. BlueBay has issued debt to the fast food business, Abrakebabra, and the Mater Private Hospital, among others. From looking at its lending rates online, I assume that the blended average rate of its loan book is in excess of 6%. That would mean profits of well over €9 million in 2016 where BlueBay had €160 million loaned out, a blended rate of 6% and profits of €9 million. Does the Minister know how much tax it paid? It paid €250 on profits of €9 million. That is not acceptable, and it is not fair in light of everything we have seen. We talk about tax avoidance, the Paradise Papers and so on, and politicians will tut-tut at this and tut-tut at that. This is about really smart accountants trying to find loopholes. The Minister is engineering the loopholes into the Finance Bill. This was done deliberately last year. How can the Minister stand over a company which loaned out €160 million and made in the region of €9 million profit on those loans to Irish businesses, including the Mater Private Hospital and Abrakebabra as examples, paying only €250 tax on its profits?
Section 110 of the Taxes Consolidation Act 1997 sets out the Irish regime for the taxation of special-purpose companies set up to securitise assets. The tax provisions are intended to create a tax-neutral regime for securitisation and structured finance purposes.
Loan originations involve a section 110 company fronting for a foreign bank and either lending directly to larger more sophisticated borrowers, or immediately issuing newly made loans to smaller borrowers from the foreign bank. Provided the foreign bank is established in one of the countries with which we have signed a double tax agreement, no Irish tax would have arisen on its interest income had it lent directly to the Irish borrowers. As the original creditor, there can be no taxable capital gain on any subsequent sale of the loans. If the loan origination company is a qualifying company, within the meaning of section 110 of the Taxes Consolidation Act 1997, it can to operate in a tax neutral manner in Ireland using a section 110 company.
In respect of the Finance Act 2016 changes, the desire was to address behaviour and issues in the area of property and property-based loans. I acknowledge, however, that issues outside property are more complex and I want to ensure that section 110 operates in a proper manner. If concerns are raised about the operation of section 110 in the loan origination space, I will ask the Revenue Commissioners and my officials to investigate these concerns. I am not, therefore, in a position to accept the amendment.
I will make two points. First, neither I nor the Revenue Commissioners is engaged in any kind of engineering or drafting of legislation to allow companies or individuals to avoid tax we believe they should pay. Second, I know some of this was touched on yesterday with the Minister of State, Michael D'Arcy, but I am aware of all of the debate on, and changes which were subsequently made to, the Finance Bill 2016 with regard to section 110 companies and organisations as well as property transactions and lending in that regard. I am aware of concerns that have been raised recently, but the Revenue Commissioners have told me that its assessment is that no tax which could have been due has been lost in this space. However, if I receive any indication from the Revenue Commissioners or from my Department that is no longer the case and that issues are developing in the loan origination space which need to be addressed, I will look at those issues.
I will not comment on the information which the Deputy has offered in respect of an individual company because it is not appropriate for me to do so, but any companies in the loan origination space should be meeting their tax commitments in Ireland. If I receive any information to the contrary, I will consider the matter and engage with the Revenue Commissioners on it.
The company is meeting its tax commitments. I would not suggest otherwise. Last year, when the Oireachtas dealt with section 110, a carve-out for loan origination was clearly written into the Bill. These changes did not apply to loan origination. Therefore, these companies can still use section 110 vehicles to write down their tax liabilities. They have special purpose vehicles under section 110 which neutralise, or almost neutralise, their tax liabilities. Therefore, neither the Revenue Commissioners nor I would in any way suggest that Revenue is developing policy for tax avoidance. I have huge regard for the Revenue Commissioners. The accusation I made was about the Minister and his Government, not the Revenue Commissioners. Let us be clear - the Revenue Commissioners are not losing any tax on this because it has to apply the law and the law says that companies can use this vehicle in order to pay such low taxes.
We can talk about section 110, we can talk about special-purpose vehicles and we can talk about loan origination, but my basic question is as follows. I gave BlueBay as an example. I know the Minister cannot talk about an individual company but its files are on record. It paid €250 in tax. It is involved with the State through the Irish Strategic Investment Fund. Cardinal Capital Group is using the exact same vehicle. It has not filed its returns yet, but it is likely that the same figure of €250 will appear. The key question is that if a company has loaned out €160 million, for example, at a rate of 6% and made profit of in the region of €9 million, how does the Minister for Finance stand over the fact that it only paid €250 in tax on that profit. Does tax avoidance not hurt us all?
Last year, the Government acknowledged, after section 110 had been consciously created, that it caused a problem. The Government was supposedly shutting down a major tax avoidance measure, but at the same time keeping this loophole open. At the time the Government estimated in the budget that the shutting down of this so-called loophole in section 110 would raise an additional €50 million. Does the Minister have any figures as to how much was raised?
Can the Minister provide any justification, because he did not do so in his reply to Deputy Doherty, as to why this carve-out was created for loan origination businesses? If he acknowledged that section 110 was being used in a problematic way by big companies in order to avoid paying tax and was closing it down generally, what was his justification for continuing it for loan origination businesses?
The reason loan origination is being dealt with in a different way to property is that Ireland in both its domestic legislation and double tax treaties maintains the right to tax land in the State. Loans which derive their value from land in the State are an interest in land, so we also maintain the right to tax profits associated with these loans. We do not maintain the same taxing rights over loans that derive their value from other sources, for example, a business within the State. As I touched on earlier, loan origination involves a section 110 company that is fronting for a foreign bank and lending directly to larger borrowers, etc. If that bank is established in a country with which we have signed a double taxation treaty, no Irish tax would have arisen on its interest income had it lent directly to the Irish borrowers. As the original creditor, there can therefore be no taxable capital gain on any subsequent sale of the loans.
On Deputy Paul Murphy's question on the yield, the figure we had provided for in budget 2017 was €50 million. Given the year is not yet complete, I cannot give an indication now on whether we will meet that figure but my expectation is that we will meet it and possibly exceed it. However, I will be able to answer the question early in 2018.
I am still looking for an answer to my basic question. How can the Minister justify the fact that a company which lends to Irish companies and records €9 million in profits pays tax of €250?
I have answered the question. I am not answering a question that relates to an individual company. It would not be appropriate for me to do so. I am answering the question generally. In Irish legislation, as it stands, and our double taxation treaties, which we have with many countries, we maintain the right to tax land differently to how we tax loans and other forms of activity. That is the reason.
I know that is the legislation. However, does the Minister not think that we should change the legislation? That is what we are doing here with the Finance Bill and what we are looking for in this amendment. We are seeking to change the legislation. Companies making €9 million in profit here should be asked to pay a bit more than €250 in tax.
The Deputy is basing his argument on a particular company. I am not doubting the bona fides of the figures he is putting forward but I am not in a position to comment on them. I have explained to the Deputy the general reasons for the approach we take. It is a long-standing approach which is enshrined in our tax legislation and our double taxation treaties and, at this point in time, I am not proposing to change it.
The amendment calls for a report on the tax neutral status available to section 110 companies that are involved in the loan origination business. It would examine removing this tax neutral status. That is what we are seeking and what we will be voting on. It is immoral that companies which record millions of euro in profits pay €250 in tax. The Minister and others who will vote against the amendment or abstain on the issue will tut tut about tax evasion, but the Minister is engineering tax evasion into our tax code. These companies are breaking no laws and the Revenue Commissioners are doing exactly what is required of them because they are applying the laws of the State, which we as politicians design. We have designed this law. Thank God we changed the law on property and so on last year, but now it is time to change the law on loan origination. This amendment calls merely for a report to examine the issue. Therefore, I will press the amendment.
The Minister referred to the Minister of State, Deputy Michael D'Arcy, who took over from him yesterday. He promised, if requested, to give us a technical note on the parallel issue of Irish real estate funds, IREFs, which were debated yesterday. I am requesting that the technical note be provided.
- Burton, Joan.
- Doherty, Pearse.
- Murphy, Paul.
- Burke, Peter.
- Donohoe, Paschal.
- McGrath, Michael.
Standing Order 97(1) negatives a question when there is an equality of votes.
For the record, Fianna Fáil went beyond the supply and confidence arrangement to make sure that these companies which record millions of euro profit continue to pay €250 tax. It is a scandal that they would not even support a report examining this issue.
We move on to amendment No. 45, already discussed with amendment No. 43.
I move amendment No. 45:
In page 39, between lines 7 and 8, to insert the following:
“22. The Minister shall, within six months from the passing of this Act, prepare and lay before Dáil Éireann a report on options available to restrict banks from carrying forward losses against taxable profits of the banks, which could result in many institutions paying no corporation tax for the foreseeable future.”.
- Burton, Joan.
- Doherty, Pearse.
- Murphy, Paul.
- Burke, Peter.
- Donohoe, Paschal.
- Neville, Tom.
Deputy Michael McGrath has voted to abstain. Standing Order 97(1) negatives a question when there is an equality of votes.
Amendment No. 46 was discussed with amendment No. 42.
I move amendment No. 46:
In page 39, between lines 7 and 8, to insert the following:
“22. The Minister shall within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report in relation to specific actions to be taken to reform the Research and Development tax credit, which would reduce the cost of the credit, stops abuses in relation to inflated claims and make the credit more appropriate for SMEs.”.
I move amendment No. 47:
In page 39, between lines 7 and 8, to insert the following:
“Report on minimum effective rate of corporation tax.
22. The Minister shall within one month from the passing of this Act prepare and lay before Dáil Éireann a report on the merits of a minimum effective rate of corporation tax, along the lines of the minimum effective rate of income tax introduced in respect of the taxation of individuals.”.
This amendment offers a path to address some of the issues we discussed. In this context, it is strikingly obvious from the report of the Paradise Papers and the Panama Papers that significant numbers of individuals and companies do not just want low taxes. Rather, they want to pay no tax in whatever global situation or company they work in.
I have raised this issue on a number of occasions over a long period of time. In the context of the most recent revelations and the decision of the United Kingdom to leave the European Union, regardless of whether there is a long transition period, this is something we in Ireland have to address.
Notwithstanding the fact that we have a very clearly stated rate of corporation tax and other taxes, people who operate with the intention to avoid or evade taxation and use a globalised financial, taxation and legal system to do so can avoid paying any tax in Ireland. It is in that context that I put forward this amendment.
I heard a representative of the OECD, whom I have met on many occasions, speak on "Morning Ireland" earlier. When I was a member of the previous Government, I was probably the strongest advocate for Ireland joining the OECD process in regard to broad tax reform with a view to benefiting all countries, including Ireland. I did not want the country's eyes wiped by accountants, lawyers and others who play a globalised game, in terms of desperately needed tax revenues for this country.
Ultimately, such behaviour is probably one of the greatest threats to modern democracies because it is resulting in a skewed and unfair system. As revelations in various disclosures have shown - there will be more - some people are getting away with it because of the global structures in which they are involved.
Ireland has an extensive range of tax treaties with other jurisdictions. Jurisdictions which were part of the British empire are the most effective and efficient tax avoidance locations anyone in the world has seen.
There are a number of states in the United States which specialise in this area as well.
We have a problem. We also have a problem, as the Minister is well aware, with our neighbours in the European Union who, understandably, at times have a concern and at times pick unfairly on Ireland because they believe that, due to our corporation tax regime, we are a major facilitator. We know about the current discussions in regard to the Apple case. What I am suggesting to the Minister is that he produce a report on a minimum effective tax rate. His predecessor had certain objections to this, which I have to confess I never fully understood. A minimum tax rate can be set very low but it does a couple of things. From a tax point of view, it means that the corporation comes into a potentially meaningful relationship, a documentary relationship, with the tax authorities in this country, other than filing a simple return at the end of which is a big nought, because it does not have anything to pay, or at the end of which is an amount that is so low in regard to its taxable profit that it defies the understanding of ordinary citizens. I do not believe the Government has anything to fear from such a report. In fact, in the context of the current revelations, and perhaps the strategic communications unit could be consulted on this, there is much to be said for the Irish Government not disregarding Irish interests but addressing these issues and developing an awareness of what is coming down the tracks.
What is coming down the tracks is a way of doing this that a number of jurisdictions have already shown and debated. Obviously, I do not know if this is this going to take a short or a long time, although the Minister may have more information on that. He is attending ECOFIN and I am sure some of these issues will come up. As I said, this issue in regard to income tax was addressed by one of his predecessors quite a long time ago. That was done by agreement and the sky did not fall in, although many were fearful the sky would fall in. Instead, very wealthy people who are resident in this country have to contribute a minimum effective tax rate whereas the Revenue Commissioners' reports had previously shown that people earning in excess of €1 million annually were paying no tax at all because of the arrangements they had entered into.
The report is to be on the merits of a minimum effective tax rate. This would require whoever was drawing up the report on behalf of the Government to address the downsides of having a structure which is riddled with loopholes like a sieve and which, because of the secrecy surrounding taxation affairs, we always learn about some years later. That we are not doing this is absolutely undermining our democracy and the democracy of many other countries. I am sure there are people, particularly within the Revenue Commissioners, who are very knowledgeable about this and who could produce a measured and thoughtful report about what this is doing to the country, the implications for democracy, the implications for the fairness and equity of the tax system and fairness to different classes of taxpayer and the implications for the future strong, positive and robust development of the country. We are at risk, post-Brexit, not just of becoming an outlier but, in the eyes of some, of acquiring a kind of pariah status, which is deeply unfair to this country and, strategically, is something the Government should be very careful about. As I said, there was a lot of opposition in previous Governments, at a time when I do not think the Minister, Deputy Donohoe, was a member of Government, to the idea that we would, for example, pursue the OECD process. We pursued the OECD process and, if anything, it has been very helpful to the country in that the OECD was able to come out at various stages and say that Ireland is not a tax haven per se, which has been very important for our international reputation. It would also be very important to future investments in this country as very big global investors will seek to be in environments that are not labelled simply as tax-dodging entities.
I would be interested in what the Minister has to say on this as I think it is fundamental to securing the future of this country. The Minister referred to banks not having any scheme to mitigate the use of carrying losses forward. He talked about that in terms of giving a payback to the taxpayers for what they had done for the banks. However, the Minister must seek to defend in a serious way the reputation of the country, which is being shredded. The Taoiseach may be very friendly with the President of France, Mr. Macron, but that is not going to cut much ice when Italy and France join up effectively, as they are doing at the moment and have been doing for some time, to address these issues.
The other issue is that some of the companies involved are so large that it is relatively easy to identify, say, the ten or 15 which may be most involved, certainly from our point of view. The old excuse is that we cannot discuss this on grounds of secrecy but these entities are so large and so much part of people's day-to-day lives that they are not secret. I totally agree with the adherence to secrecy in terms of taxpayers' affairs but, when the entity has multiples of the entire output of Ireland and multiples of the reach of Ireland, while it is not a country and is a company, fresh thinking is required.
The process began two budgets ago when the Government began to bring in people like Seamus Coffey to prepare reports. All I can say is that, whether one agrees with those reports or not, their production has been extremely useful and helpful to the country and its reputation. I am interested to hear whether the Minister is going to pretend this is not the world we are living in now. We need to look at this issue and be able to talk about it. We need to defend the rights of Ireland to attract foreign direct investment and the jobs it brings. We need to have a fair tax system, but one that results in corporations paying minimum taxes. There is no point in saying that, in practice, these very big companies actually do pay something; we need to have a structure that we can point to, and we need to pick a figure, for example, 6.5% or 7.5%, which is a very modest figure. We need to do that so we are able to turn around in the future and defend our location as a very attractive location for foreign direct investment. We need also to be able to reassure those companies that the environment in which they are operating is genuinely lawful and not damaging to the rest of the world.
These are very big issues. The proposal is to look at minimum effective tax rates. One can pick different kinds of minimum effective tax rates and it would be for whoever the Minister might commission to work on this. Ten years ago we could not get any information about how much the highest and lowest individual taxpayers paid in tax.
Gradually we got information about that and that enabled us to change the system.
At the moment Ireland is being called out and named, unfairly in some respects, as being among the worst culprits mentioned in the recent revelations. We need to put our collective information and intelligence on this matter together because otherwise we risk becoming a pariah country, something we do not deserve. We should not receive such treatment but the Minister is going to have to take some decisions to address this.
We are indeed taking decisions on these matters and implementing them. I am well aware of the consequences of the growing public debate over the international and domestic taxation of massive companies. I am also well aware of the legitimacy challenges that this poses for individual taxpayers and of the consequences for our national reputation. As one might expect given the gravity of the matter, I put a huge amount of my time as Minister for Finance into managing this.
It is important to reiterate a number of points here. I am completely committed to the OECD process because it has, to date, generated a global template for dealing with corporate tax matters. I have avoided commenting on the details of any particular company mentioned in the Paradise Papers or in the Panama Papers before that. As was reiterated by the OECD contributor on Morning Ireland today, however, we can draw the broad conclusion that a global solution is required here. Part of such a global solution would involve many companies moving at the same time or having the same pathway towards resolving this matter. We have both the OECD agenda and the Base Erosion and Profit Shifting, BEPS, process at the heart of much of what we have done and are looking to do.
I welcome the contribution made by Mr. Seamus Coffey's report on this matter and I have put it out for public consultation. The Finance Bill 2017 lays the foundations for many of the other changes and decisions I will be making into the next year and beyond in order to continue to bring the Irish corporate tax code into line with the OECD recommendations. I will carry all of this out. I want our corporate tax code to be both acknowledged by all to be legitimate and to leave us competitive. We will pursue both of these objectives and are on a path to doing so. The OECD contributor on "Morning Ireland" today recognised that, after a period of debate which is understandable given the open nature of our economy, Ireland has indeed put in place actions to ensure that we play our part in the co-ordinated actions necessary to deal with the consequences of unco-ordinated tax regimes all over world and with what certain companies and very wealthy have been trying to do. At the next Eurogroup and ECOFIN meeting, for example, recommendations will come from the European Commission on the creation and consequences of a so-called blacklist. Ireland will play its full role in dealing with these matters because it is in our national interest to have them resolved. This is what we are trying to do here.
What I have to manage, however, is the other side of the coin, namely, the fact that we have a corporate tax model that is both a legitimate response and a legitimate element of the economic model of a small, open country located where we are in Europe. As a result of Brexit and the process of moving towards leaving the European Union by the end of transition period, the United Kingdom is now already committed to making choices on its corporate tax model and on reducing the headline rate. This means that companies will look at what the United Kingdom is doing as well as at their own locations and investments here in Ireland, and this is something of which I also have to be aware as I outline a path for how we want to ensure that our own corporate tax model is both competitive and legitimate.
Deputy Burton talked about our reputation being shredded. I ask her to also take into account, however, the efforts we have made to deal with matters over the past few years as well as our clear commitment to the OECD process. The Deputy talked about secrecy but I think she also acknowledged that I, as Minister for Finance, owe it to anybody with tax relationships and commitments here in Ireland to be able to have private exchanges of information with the Revenue Commissioners. I cannot comment on that. It is a principle to which I must adhere but it must be fair and equal to all. Deputy Burton mentioned our reputation as being among the worst culprits. Again, however, the OECD representative acknowledged this morning that Ireland is playing and has played its part in already inserting OECD recommendations into our tax code. The former Minister, Deputy Noonan, signed up to further elements of the BEPS process some time ago and I look forward to enacting these measures. Further recommendations will come from the OECD across the first half of next year. We will work with these constructively to see how a consensus can be generated on how to deal with other aspects now emerging as important: digital taxation, for example. This committee would of course also hold me accountable if I were to follow any course of action that then turned out to be responsible for the loss of Irish jobs and investment. What I have described here is the pathway that I am following and what it is that I am seeking to manage.
With regard to what Deputy Burton proposes in this amendment, a paper of this nature was, as the Deputy is aware, produced in 2014. This paper acknowledged that there is no internationally agreed standard for calculating effective rates of tax. It agreed on three different methodologies for doing so, laid out the different options for each, and analysed in greater detail eight different figures quoted in respect of Ireland. The paper also concluded that the approach based on national aggregate statistics from the Revenue Commissioners and the Central Statistics Office is the most suitable. Based on data from the Central Statistics Office, using the net operating surplus, and from the Revenue Commissioners, using the taxable income, the report highlighted that since 2003 the effective corporate tax rate has averaged 10.9% and 10.7% respectively. More recent analysis by the Revenue Commissioners noted that the effective tax rate of companies in 2015 was provisionally calculated as 9.8%, representing an only marginal increase on the 2014 rate of 9.7%. In 2012 and 2013, the effective rate was 10.1%. I would note that while these percentages are lower than the 12.5% headline rate, this can be attributed to the availability of the small number of targeted measures, such as the research and development tax credit.
Given how recently this paper was produced and given my commitment to the implementation of the OECD process to date, I do not accept Deputy Burton's amendment.
I am sure that the Minister knows that the premise on which that particular 2014 report was produced is not appropriate to the dilemma now faced by this country on this matter. We have already had a number of examples in this debate of prominent companies and structures of one kind or another which have had the happy result for their owners of being able to avoid paying practically any corporation tax.
If the Minister tells me that the shops on the main street of a town or the SMEs or the like on industrial estates and in warehouses on the outskirts of towns are paying between 7% and 11%, I have no difficulty in accepting that. They are not able to avail of the types of structure available to certain categories which we have already discussed during the debate on the Bill.
Second, I did not say Ireland was the worst. That is not my view. I said something different, that the country's reputation was being shredded at a time when we needed friends. Yes, people might admire some of what is happening in Ireland, but the fact that we have some of the largest global companies and that we have a finance sector and a number of others that involve not SMEs but the very wealthy in very effective tax avoidance and tax evasion schemes ought to be of serious concern to the Minister. It ought to be of particular concern because of what is coming down the road post-Brexit and may start within the transition period, as we do not know how long it will be. It is also something that is gnawing at the foundations of democracy. In the long run it is a short-sighted view to try to argue, as the Minister is doing, that we should continue in this way. During the last Government it was part of the reason Ireland signed up to the OECD process, something not everybody agreed with. The views of Fine Gael on this issue are very different from those of the Labour Party and it was a difficult debate in that Government. However, it resulted in a process that improved Irish compliance with international tax norms while retaining Ireland's attraction as a foreign direct investment location.
The report to which the Minister referred is interesting, but I would not put too much faith in it addressing the types of issue I am addressing. I am not addressing people and companies in Ireland who are tax compliant and pay their fair share. Nobody has a problem with any of them as they are providing employment throughout the country. However, I do have a problem with situations where zero or close to zero - we had an example this morning - ends up being the contribution they make to this society. All I am suggesting is a simple mechanism. It does not have to be at a high, punitive rate. It also means that the Revenue Commissioners would be put in a stronger position to deal with those companies and get behind how such situations are facilitated.
On a wider basis, the country must respond to what is in contained the Paradise Papers and what was previously in the Panama Papers. I had discussions on this issue with the Minister's predecessor and the then Taoiseach. It is not avoidable in the long term. This is a very simple mechanism. The Minister can go to the OECD and the ECOFIN meetings and say we are looking at bringing it into effect. Fine Gael is part of the European People's Party in the European Union. It is a union of very conservative parties. The Labour Party belongs to the group of socialist parties. There are genuine differences that have to be resolved in the interests of the continuation and viability of the European Union.
I am very disappointed by the Minister's response. He made a charge about me that I did not make. I ask him to note this. However, I did say our reputation was being shredded. I am a strong supporter of Ireland in attracting international investment. I have worked with multinational companies, both professionally and politically, in my career. In the long run they cannot avoid what is happening to them in the exposure of their tax avoidance. The country needs to address that issue and this is an element of doing it. There were good examples in the debate earlier this morning of situations that were broadly unacceptable. This is always a game of catch-up. The Revenue Commissioners simply do not have enough resources to keep up with all of the loopholes as they inevitably develop. Nobody is asking the Minister to be able to see the future, but we must deal with what we know and, whether the Minister likes it or not, we all know now about the Paradise Papers. Some of it is what we suspected and some of it is material of which we had no knowledge.
This is a very modest proposal to address an important issue for the country. If the Minister wishes to put it into another format, I will be happy to hear what suggestions he might have to make. That has been done previously and it worked out to everybody's advantage.
I support Deputy Joan Burton's amendment which is a sensible one. It proposes that we examine the merits of having such an effective tax rate.
I wish to comment on and question the Minister's current position on a number of matters. Listening to him one would think the Government was great at leading the charge on the issue of tax transparency in the global process and whatnot and that it should be patted on the back for all of the things it has done. I have mentioned the OECD report on which the Government continues to rely, but only one country in the world, Trinidad and Tobago, is non-compliant. All of the rest are either compliant or partially compliant. In addition, it is only about the transfer of tax information. It does not delve into the issue with which the Minister is dealing - State-sponsored tax evasion. What he is doing, with the support of Fianna Fáil, is engaging in State-sponsored tax evasion. As I said about the previous amendment, it allows companies to pay €250 in tax on profits of €9 million. It allows a company such as AIB in which we have large a shareholding to record profits of €1.5 billion and pay no corporation tax. If that is not State-sponsored tax evasion, I do not know what is.
The issue is that the Government has been dragged kicking and screaming on many of these matters. Yes, it closed the double Irish, but did it really do so? It will still be in place until 2020. That should not be forgotten if we wish to be accurate about all of the information available. Anybody who used the double Irish can continue to use it until 2020. However, the Government did it under massive pressure from us in the Opposition - I will not rehash all that was said to the effect that nothing could be done - and international pressure. With regard to the stateless companies which I wrote legislation to close, the Government denied time and again that it had the ability to close them. Then it had to do that because the CEO of Apple gave sworn testimony before the US Senate that he had done a deal - I was going to say a dirty deal - with the Irish authorities to reduce its tax liability to single digits. At the time he referred to a figure of 2%. Both he and the head of tax, Mr. Bullock, gave that sworn testimony and there was an international outcry that Ireland was doing this. What did we do? We eventually closed the stateless companies. It was known to the authorities here that they were operating in the State.
Regarding the black list the Minister mentioned, does he now support the Commission's view that there should be a black list? Does he also now support public country by country reporting? I remind him, if he needs to be reminded, that he and his colleagues in Fine Gael and Fianna Fáil voted in the Dáil last year to block an EU directive that would have required public country by country reporting, not privately or what takes place in the information being shared by revenue authorities. It is the public part of that information which relates to companies with a turnover or profits of €750 million. The Minister, with his colleagues in Fine Gael and Fianna Fáil, voted against the European directive.
At the time the Government argued that the Commission should not have a role as regards black lists, an issue which should only be determined by national parliaments. Does the Minister support that view? The Irish Parliament, against the wishes of Sinn Féin, Solidarity and a number of other smaller parties, voted to use the provisions of the Lisbon treaty to fly the flag of subsidiarity and argued that the European Commission did not have the right to introduce the directive which was related to tax transparency. The Minister should not try to pretend that the Government is leading the charge in any of this. It tried to block the European Commission directive on public transparency which sought to provide for country by country reporting. Imagine if it had come in; we would have been able to see where the taxes of Apple or other larger multinational companies were being paid. This is State-sponsored tax evasion, but there is nothing illegal about it because the Government is in charge.
Big companies can engage in tax evasion because of Governments such as the one of which the Minister is a member. He can sit before this committee and justify the banks not having to pay tax for the next 20 years. Companies which record profits running to millions of euro can use vehicles that allow them to reduce their tax liability to €250. Ireland has opened the door to intellectual property and intangible assets being placed onshore. This allowed Apple to write off billions of euro in tax. This Finance Bill will ensure Apple will not pay any of these taxes because the Minister is ensuring any of the intellectual property placed onshore until the date of the budget may be used as a capital allowance against profits. That is what he is doing. We can talk about competitiveness and so on, but I have a responsibility to spell it out that this is State-sponsored tax evasion.
I am sick of hearing politicians on "Morning Ireland" or other radio and television programmes tut-tutting about these companies getting away with blue murder when they sit on the finance committee and vote through legislation that enables them to do precisely that. If it was illegal, those doing it would be behind bars, but it is perfectly legal because people like the Minister, with his friends in Fianna Fáil, allow legislation to be drafted in a way which enables multinational corporations and the elites in society not to pay their fair share of taxes. Does the Minister now support the European Commission in introducing a black list of tax havens? Does he support the European Commission's directive on public country by country reporting?
I will make two points about Ireland's effective corporation tax rate as it relates to Brexit. We are using a great deal of diplomatic capital on Brexit. Inevitably, during conversations with European colleagues the issue of Ireland's corporation tax rate is raised. We will come under pressure over it. Much has been done in recent years, including the placing onshore of intellectual property, the closing of the double Irish and much more. New Commission data have been released which are independent and which show the effective corporate tax rates of all European countries. Ireland's performance is fine. The data strip away the headline rates of 35% or 40% for some of the bigger countries and look at what is being paid. In that context, Ireland is fine. It might be worth circulating the data.
The Government has an opportunity to communicate better in this area. Recently I was discussing Brexit with a European politician, one of those leading the work on European tax rates, and he raised the issue of Ireland's corporation tax rate. I outlined the various changes which had been made and noted that in 2015, as a result of some of these changes, our corporation tax take had increased by 50%, which was unheard of and cash proof that the loopholes had been closed. He said that information was not well known in the Commission. It is very powerful information which shows that corporation tax returns here have increased.
Sinn Féin has been sniping away bombastically for ten minutes about Fianna Fáil and I want to respond. The single greatest tax avoidance measure was section 110 used by vulture funds. I worked on the matter last year and it was Deputy Michael McGrath who said Fianna Fáil would not support the budget unless the changes were made. That was Fianna Fáil's contribution, rather than hiding behind the couch and telling others what they should do. Fianna Fáil stated it would not support the Finance Bill unless there were changes to section 110 and those changes were made. When Sinn Féin was in charge in Northern Ireland - it no longer is because it is unwilling to form an executive - it was a Sinn Féin member of the finance committee who proudly announced that they were reducing the corporation tax rate in Northern Ireland to 12.5%. In the one jurisdiction where it could do something it provided for a massive reduction in corporation tax rates.
That did not happen. We want harmonisation.
When this committee analyses the common consolidated corporate tax base, CCCTB, proposals, it should bear in mind a significant concern raised by the Revenue Commissioners and the Department of Finance, that Ireland has a broad tax base which would be narrowed considerably were the proposals to be introduced. That was one of the main points raised. It is clear that there is no consensus on how minimum effective rates should be calculated. The Coffey report of 2014 was a very good one. Perhaps it should be updated, but it did not substantiate the frequently made claims that the effective rates were in the order of between 2% and 5%.
I am concerned about some of the long-established reliefs which were limited because we had a very broad tax base, notwithstanding our discussion on how losses affected the banks which was most exceptional, rather we should discuss the issue of losses generally, research and development tax credits and the treatment of capital allowances. If after applying all of these, one was to arrive at a certain taxable profit and apply the 12.5% rate and it came into conflict with the minimum effective rate one might set in a hypothetical scenario, would the achievement of the minimum effective rate supersede retaining the key pillars of the corporation tax code for research and development, capital allowances and losses? There is a potential conflict which must be acknowledged. These are legitimate deductions which are part of the corporation tax code and which could potentially come into conflict with achieving a certain minimum effective rate, depending on how one would measure it. Anyone who reads the report which runs to over 40 pages will see clearly that there is no consensus on how minimum effective rates could be achieved. It is the case that Ireland does not have as many reliefs and allowable tax deductions as many other jurisdictions in Europe. We have seen the analysis in which countries such as France which have higher headline rates end up with much lower effective corporation tax rates. That should be acknowledged.
If I was to participate in anything which had the immediate effect of risking the loss of Irish jobs, the first party that would condemn me would be Sinn Féin. Deputy Pearse Doherty spoke about my responsibilities. I have outlined the responsibilities I have and which Deputy Michael Noonan had before me. I have to ensure we change the tax code in a way that is compliant and consistent with the evolving international consensus. We have done so and will continue to do so. Deputy Pearse Doherty can point to the role he played in that debate, but the then Minister, Deputy Michael Noonan, recognised the need in key areas and made the changes at a time when there was a risk that they could undermine Irish jobs and the contribution corporation tax receipts made in funding public services.
For the Deputy to come in here and suggest the previous Minister made those changes because of the role of the Sinn Féin Party in the debate that took place ill serves the contribution Deputy Noonan made to putting in place the foundations for the reforms that are needed in regard to corporation tax, changes that were acknowledged this morning by the OECD. We are a small open economy and changes like these can, of course, have a significant effect on the economic fortunes of our country. The then Minister, Deputy Noonan, through the changes he made in respect of stateless companies and the double Irish arrangement, which were touched on by other speakers, began the process of change that was needed and which he proceeded to implement in regard to corporation tax. Nobody should be under any doubt that if I went ahead and did things which undermined the predictability and competitiveness of the Irish corporation tax model, which has played a valuable role in creating Irish jobs, one of the first parties to condemn me for doing so would be Sinn Féin, led by Deputy Doherty. The agenda I need to deliver now and in the coming years requires implementing the changes that are needed to ensure our business and tax models meet the expectations and requirements that are there from an OECD perspective and elsewhere while at the same time ensuring the competitiveness of our country is not undermined in a changing Europe and a changing world. That is the complexity I look forward to managing in the time ahead.
Deputy Burton used the phrase "among the worst".
I used it in reference to our reputation.
That is the phrase the Deputy used.
I allowed the Deputy to speak. I am simply asserting that she used the phrase "among the worst".
Yes, in terms of reputation.
The record will show it is what the Deputy said. She made the allegation that I am looking to preserve things as they are without being mindful of the accelerated debate that is under way in regard to corporation tax across the world. At the same time, however, she acknowledged that I wish to implement the OECD view and template on matters like corporation tax. Those two statements are incompatible and inconsistent. I am aware of the changes we have signed up to and of the new environment in which our corporate tax model is operating. I am seeking a pathway that will enable us to maintain Irish employment and Irish investment while also creating a sustainable route to addressing the issues and needs that are there. We have a pathway to how we will do some of that and I expect we will get further ideas and contributions from the consultation that is under way on the Coffey report on corporation tax, all of which I will respond to in the new year. I am aware of the debate that is ongoing on changing taxation models and the evolving views on how larger companies operate. As I said earlier, it continues to be my view that companies should pay a fair share of tax and should make their contribution to the societies upon which they depend.
Deputy Doherty asked about the European Council's EU tax blacklist. I look forward to seeing that report, which we expect will be presented at the European Council of Finance Ministers, ECOFIN, meeting on 5 December. I will have to see what the final report looks like but I expect to be in a position to support it. I look forward to Commissioner Moscovici and the other members of the Council getting back to me with the work in that area throughout November.
I do not support public country by country reporting for the very good reason that we have a long-standing principle in this country that the exchange of information between companies or individuals and the tax authority is confidential. That confidentiality in managing information will allow us to continue to make progress on the different issues we need to address. To reiterate, here in Ireland, exchange of information between the Revenue Commissioners and a company or individual is private. That is not the same as saying I support tax evasion. In recent years, the Revenue Commissioners have collected an extra €1 billion by dealing with activity that is illegal in regard to tax avoidance, including offshore tax avoidance. They will continue to do that work and I will provide any resources or further powers needed to allow them to do it.
Deputy Donnelly spoke about the need to tell our story when it comes to the discussion around corporation tax. I have been telling that story in this committee in recent days and it is a story I tell on almost a monthly basis in our Eurogroup and ECOFIN meetings. Together with the Finance Ministers of Italy, Germany and the Netherlands, I went before the PANA Committee of the European Parliament some weeks ago and outlined what Ireland has done in respect of corporate tax. It is a story we need to keep telling. I have met Commissioner Moscovici and Commissioner Dombrovskis on several occasions, both of whom are involved in this area, and outlined what Ireland has done and our commitment to playing a constructive role in this debate in the future. We must continue to point to what we have achieved, including the growth in Irish corporation tax receipts and the progress we have made in eliminating issues which we acknowledged needed to be addressed.
Deputy McGrath cuts to the heart of all this when he asks what the trade off would be between a minimum effective tax rate, on the one hand and, on the other, the fact that we have a broad corporation tax base with a limited number of credits against which companies can reduce their liability and where the difference between our headline tax rate and the effective rate is far narrower than is the case for other interests who make charges against our country in this area. The journey between Ireland's effective tax rate and nominal tax rate is far smaller than it is in other European Union jurisdictions. The desire to be predictable, competitive and legitimate is at the heart of our tax model. Deputy Burton understands these issues well because she has participated, as she acknowledged, in the types of missions in which we seek to work with international companies to retain the jobs they have created in Ireland and encourage them to create even more employment here. The Deputy knows that the value of predictability and certainty in our tax code is really important. It is for this reason that I am not in a position to support a minimum tax rate. For me to signal in this committee that I will support a proposal for the bringing forward of a report outlining the merits of that approach would undermine our efforts to tell the strong story we have to tell in regard to our efforts at implementing corporate tax reform while also retaining the jobs we have and attracting more jobs into our country.
I wish to reply.
I will go back to the Deputy in a moment. Progress is very slow. I know the issues are very important but relevance is a key principle. In some cases we are going back to discuss the Finance Bill 2016. We must be careful in order that we can make progress. I want to be as fair as I can to give everyone a chance to contribute. I think I have done that. It is Deputy Burton's amendment. I ask her to conclude her contribution.
In the Revenue documentation that was given to the Committee on Budgetary Oversight where the Revenue did point to the fact that the €46 billion increase in profits in the tax returns was the primary factor underlying the increase of €2.2 billion in corporation tax. That is the stand-out fact in the story of Irish corporation tax in recent years. The country has taken a very heavy reputational hit. It is identified, in some cases completely wrongly but in other cases correctly, as being a country in which there is not proper oversight and jurisdiction in relation to certain companies that have taken advantage of particular structures in the Irish tax system.
In regard to the point made by Deputy Michael McGrath about how one deals with minimum effective tax rates, I do not think one has to worry in the sense that one can pick a figure at which that begins to operate. The discussion earlier was in relation to the banks and their very significant profits running into the hundreds of millions, and probably into billions in the next year or two. It does not matter what the tax rules are. There is something absurd in a country where there is a desperate need to fund both investment and services to have extraordinarily profitable institutions, which are not making any current contribution, bailed out by the taxpayer. The remedy for that is very simple. It is brought in at a certain level of profit so that there is no problem for a company in a run-of-the mill situation where it has had a lot of capital investment and it may have had losses in building a start-up. It is set at a certain level and once a company has attained a certain level of profitability it must contribute. That is what we have done in regard to high net worth individuals and therefore it just affects that category of people. It is a targeted approach. SMEs are highly unlikely ever to be affected by this.
In terms of the contacts with other European countries, I think the baseline studies that have been done to establish what real effective tax levels exist in different countries are very important because every country has different rules and there is no compatibility in those rules. However, in terms of the BEPS process, it is a long-range one, which I support. I have publicly and privately supported it. I am happy to say the Government of which I was a member eventually supported it. That made a lot of sense for Ireland. I am basically challenging the Minister to continue that work in a way that will develop and protect Ireland's reputation rather than make us the target for future punitive action.
From what the Minister said about ECOFIN, it may well be that most European countries have now decided to take a bit of a step back from all of this and to talk the talk but not particularly to take action. In the European Union the fairness and equity of taxation should be visible to citizens. We can compare that with the taxation of companies, in particular a clutch of key, globalised companies which effectively are outside the jurisdiction of most countries. What has been shown in the Paradise and Panama papers is the use of globalised mechanisms. All we can do is to address those mechanisms as they arise. We had some debates on the issue here. There was an example of a company with significant profits paying €250 in tax. It is very reasonable to ask how that happens. If somebody earns €30,000 a year he or she will still make some contribution even though in the scheme of things it is not a lot of money.
The Minister and his fellow ECOFIN Ministers must consider the principles of equity and what in the long run is the best for sustaining countries. I am interested in the long run in Ireland being attractive to foreign direct investment. I am interested in Ireland being attractive for Irish SMEs and in Ireland creating employment. I have always stood by that and the Labour Party has always stood by that. The Minister is running away from the issue and seeking to wrap it up in a message that all is now fine; there is nothing to see here, move on. That is not true. We know, for instance, from the report of the Revenue Commissioners themselves on the black box and the R&D tax credit that we are now paying refunds to companies that are paying no corporation tax. On the scale of things that is a small problem but it is a problem that requires to be addressed. I put it to the Minister that the essence of taxation is that it is something that is in a constant state of flux and development and I am seeking that Ireland protects the integrity of its tax system as regards companies and corporations by having a structure on minimum effective tax rates. That is all. It is going to protect Ireland not cause any damage and it is going to improve fairness relative to ordinary taxpayers.
Is Deputy Burton pressing the amendment?
- Burton, Joan.
- Doherty, Pearse.
- Murphy, Paul.
- Burke, Peter.
- Donohoe, Paschal.
- Neville, Tom.
Deputies Michael McGrath and I have voted to abstain. Standing Order 97(1) negatives a question when there is an equality of votes. Amendment No. 48 has been ruled out of order.
I move amendment No. 49:
In page 41, between lines 9 and 10, to insert the following:
"Amendment of Chapter 6 of Part 19 of Principal Act (transfers of business assets)
26. (1) Section 597AA of the Principal Act is amended—
(a) in subsection (2)(b)—
(i) in subparagraph (ii), by substituting "land," for "land, or",
(ii) in subparagraph (iii), by substituting "chargeable gains," for "chargeable gains.", and
(iii) by inserting the following subparagraphs after subparagraph (iii)—
"(iv) subject to subsection (8), goodwill which is disposed of directly or indirectly to a company, where, immediately following the disposal, the individual is connected with the company, or
(v) subject to subsection (8), shares or securities in a company which are disposed of directly or indirectly to another company, where, immediately following the disposal, the individual is connected with the first-mentioned company.",
(b) by inserting the following subsections after subsection (5):
"(6)Subject to section 600 and subsection (8), this section shall not apply to such portion of the chargeable gain or gains accruing in respect of a disposal or disposals by a relevant individual of chargeable business assets which form part of a transfer to which section 600 applies as bears the same proportion to the total of such gains as the value of the consideration received by the relevant individual out of the assets of the company in respect of the transfer bears to the value of the consideration received by the relevant individual other than by way of shares or securities in respect of such transfer.
(7) Where a relevant individual enters into arrangements, the main purpose, or one of the main purposes, of which is to secure that the relevant individual is not connected with a company for the purpose of either or both of subparagraphs (iv) or (v) of subsection (2)(b), this section shall not apply.
(8) Subsections (2)(b)(iv), (2)(b)(v) and (6) shall not apply in relation to a disposal of assets where it would be reasonable to consider that the disposal is made for bona fide commercial reasons and does not form part of any arrangement or scheme the main purpose or one of the main purposes of which is the avoidance of liability to tax.".
(2) Section 598 of the Principal Act is amended—
(a) in subsection (1), in the definition of "chargeable business asset", by substituting the following for "other than an asset on the disposal of which no gain accruing would be a chargeable gain;":
(I) an asset on the disposal of which no gain accruing would be a chargeable gain,
(II) subject to subsection (1)(f), goodwill which is disposed of directly or indirectly to a company, where, immediately following the disposal the individual is connected with the company, or
(III) subject to subsection (1)(f), shares or securities in a company which are disposed of directly or indirectly to another company where, immediately following the disposal, the individual is connected with the first-mentioned company;",
(b) in subsection (1), by inserting the following paragraph after paragraph (e)—
"(f) Goodwill, shares or securities referred to in clauses (II) and (III) of the definition of ‘chargeable business asset’ shall be treated as chargeable business assets where it would be reasonable to consider that a disposal of such assets is made for bona fide commercial reasons and does not form part of any arrangement or scheme the main purpose or one of the main purposes of which is the avoidance of liability to tax.",
(c) by inserting the following subsections after subsection (7A):
"(7B) Where an individual enters into arrangements, the main purpose, or one of the main purposes, of which is to secure that the individual is not connected with a company for the purpose of either or both of clauses (II) or (III) in the definition of ‘chargeable business asset’, the individual will be deemed to be connected with that company for the purpose of either or both of clauses (II) or (III) as the case may be.
(7C) Subject to section 600 and subsection (7D), this section shall not apply to such portion of the chargeable gain or gains accruing in respect of a disposal or disposals by an individual of qualifying assets which form part of a transfer to which section 600 applies as bears the same proportion to the total of such gains as the value of the consideration received by the individual out of the assets of the company in respect of the transfer bears to the value of the consideration received by the individual other than by way of shares or securities in respect of such transfer.
(7D) Subsection (7C) shall not apply in relation to a disposal of assets where it would be reasonable to consider that the disposal is made for bona fide commercial reasons and does not form part of any arrangement or scheme the main purpose or one of the main purposes of which is the avoidance of liability to tax.".
(3) Section 599 of the Principal Act is amended—
(a) in subsection (5) by substituting "Subject to subsection (7), the consideration" for "The consideration", and
(b) by inserting the following subsection after subsection (6):
"(7) Where there is—
(a) a disposal of shares or securities of a family company by an individual referred to in subparagraph (iia) or (iii) of subsection (1)(b) to his or her child, and
(b) a disposal of shares or securities of the family company by the individual to a company controlled by that child, the consideration for the disposals referred to in paragraphs (a) and (b) shall be aggregated for the purpose of subsection 598(3).".
(4) This section shall come into operation on 2 November 2017.".
Amendment No. 50 has been ruled out of order.
My amendment has been ruled out of order. While the Chairman signs the ruling, he gets a direction to do so. I raise this issue in the debate on every Finance Bill and I have dealt with seven. It is not clear how the rules are applied. I hope the Chairman will take up this issue at a later stage. My amendment on intangible assets to change the date to an earlier one has been ruled out of order because it involves a potential cost on the people. A different amendment which would have resulted in a cost of €20 million was allowed for debate. It is pot luck whether amendments will be allowed. There is a need for a report on that issue.
In section 28 I wanted to delete lines 10 to 13 and substitute the following:
Where a person disposes of land with residential development potential to which this section applies during the period beginning 4 years after the date they were acquired and ending 7 years after that date, any gain on the disposal of such land shall not be a chargeable gain.
The concern about the section is that it deals with the seven-year capital gains tax exemption. It is not just for development land but all types of land and commercial assets bought during the period. I have made the point, for example, that somebody who purchased a hotel some years ago, for whom the seven-year timeframe has not elapsed and who plans to sell it next year, will not pay capital gains tax at the rate of 33% on the gains made. That is wrong. I support the principle behind the amendment and the rationale for it that has been played out publicly. It also fits in with what I said about the five-year dividend withholding tax exemption. We need to focus on freeing up land for development, but the amendment to section 28 would not capture development land only.
This is a change we welcome. I welcome the section. Do we have a profile of the assets that have been purchased? I can see the Minister's official shaking his head. We do not have a breakdown of what was purchased during the window. The period of seven years is being reduced to four to make land available and remove any incentive to hoard it. Do we have any measure for what has been purchased?
To answer Deputy Pearse Doherty first, his amendment is to section 28 which gives effect to my announcement on budget day that a full exemption from capital gains tax would be granted on land or buildings acquired between 7 December 2011 and 31 December 2014 and held for a period of four years commencing after they were acquired and ending seven years after that date.
The amendment to section 28 applies to land and buildings. As regards land, the relief makes no distinction as to how the land is being utilised or whether it has development potential. This is in line with the original relief introduced in the Finance Act 2012, which is now section 604A of the Taxes Consolidation Act 1997. The legislation was framed in this way because it is not possible to treat one type of land more favourably than another. That is the rationale for my not accepting the Deputy's amendment. I believe this change is justified given the current status of the property market and the need for land to be released for development use. I anticipate that some of this land will be used for residential development. This is a policy change that should be seen in the light of the decision I have made in regard to stamp duty on commercial property. These two measures should be viewed together.
In regard to Deputy McGrath's point, we do not have a register of property to which this might apply but I do have ample indications to show that this does have the potential to stimulate the release of property throughout the course of next year.
The Minister's point is that it is not possible to differentiate between development land and non-development land, which was the focus of my amendment. The capital gains tax, CGT, exemption would apply if an owner held on to the land for seven years, but under this Bill he or she will be able to dispose of it after four years and still avail of the exemption. I think that reduction in timeframe should only be available in respect of disposals which we know will result in development. However, the Minister has responded that no such differentiation can be made, which is fair enough. It being the case that this measure will apply to all land whether it has development potential or not, why are buildings included? I refer members to the case of the hotel purchased in 2003. As things stand, if the owners of properties purchased between the 2011 and 2014 window, be that an office block, a shopping centre and so on, propose to sell next year because they need to raise capital for other business ventures etc., and the uplift on their properties is €500 million, they would have to pay approximately €165 million in taxes, but following the implementation of this measure they will pay nothing in terms of capital gains tax.
Yes. There will be transactions occurring next year that I believe would not have happened but for this change being made. I am trying to get to a point next year where we will have more land being released for development. My objective is to try to maximise residential development. The Deputy is correct that there are people who may have been planning to make a transaction next year anyway who will now do so in a tax environment that will be more favourable to them. Against that, there will be transactions that will occur next year that otherwise might not have occurred.
I am satisfied. I would like it to have applied to development land only but I understand that is not possible. I have no problem with the reduction in the timeframe from seven years to four years in respect of the disposal of land. However, I do have a problem with this being applicable to buildings also. A case in point is the hotel which had an uplift of €500 million during the time between its purchase in 2014 and now, which the owners plan to sell next year to raise additional capital for other investment and in respect of which they will have to pay approximately €160 million in taxes as a result of CGT at 33%. As a result of this ruling, when this hotel is sold next year there will be no capital gains tax due. That does not benefit the housing market.
As I have already explained, the legal advice I have is that I cannot differentiate between different forms of land and buildings. I cannot do that.
The amendment references land and buildings. I can understand the Minister's explanation in regard to land but why can subsection (2A) not be rewritten to read "(2A) Where a person disposes of land to which this section applies"?
The advice I have received from the Attorney General, and this is also the case within the European Union, is that I cannot differentiate between land and a building.
Would the Minister be willing to share that advice with the committee?
The Deputy will be aware of the long-standing approach in regard to the sharing of advice from the Attorney General to Government. I am not in a position to share that information.
I find that very hard to understand. I am not saying that I do not believe the Minister has received that advice. The tax code provides for taxation measures specifically to deal with land as opposed to buildings, for example, the vacant site levy. I cannot understand, therefore, why the Minister cannot introduce an exemption from CGT for certain properties, for example, land as opposed to buildings.
I will try to give some more context in terms of the legal advice I have received. The Revenue Commissioners have advised me that it is not legally permissible to narrow the focus and single out a category of land in relation to this relief. Section 604A applies to all property purchased within the European Economic Area, EEA. This provision was included in the legislation so as not to conflict with EU freedom of establishment rules. The freedom of establishment is considered to be one of the essential freedoms in establishing the European Internal Market. Articles 49 and 54 of the Treaty on the Functioning of the European Union grants persons and companies the right to set up establishment and pursue economic activity within the member states of the European Union. As the Deputy knows, I cannot share with him advice I have received from the Attorney General. The advice I have just read into the record is advice I have received from the Revenue Commissioners, which indicates to me that I cannot make the change the Deputy requests.
My understanding of the advice is that it is not possible to differentiate between different types of land. My amendment originally sought the exemption in respect of development land only. I accept the advice that it is not possible to differentiate between different types of land, but I did not hear in that advice any reference to it not being possible to differentiate between land and buildings. That is the issue. The change being made will result in huge windfalls for persons who were going to sell commercial buildings next year anyway. They would have had to pay 33% tax on the gains accruing to those properties over the four or five years they owned them, but as a result of this change they will be able to sell and pay no tax. I understood that the intention behind this change is to try to release land for housing development. Is there any way we can strip out buildings from land? As I said, there was no mention of that in the advice the Minister read out. Perhaps between now and Report Stage the Minister will examine whether there is any potential to have buildings stripped out of this, leaving only land?
I would like to make two points. I referred earlier to Section 604A of the Taxes Consolidation Act 1997. This applies to all property purchased within the EEA. In terms of interpretation of that provision, property includes buildings. In regard to the Deputy's second point regarding the tax effect of this measure, following the coming into effect of this measure next year, in conjunction with the measure I have introduced in respect of stamp duty on commercial property, commercial transactions which occur next year will be subject to the higher stamp duty rate of 6%, as opposed to 2%. While it is possible-----
Four per cent compared with 33% is-----
The Deputy said that no tax would be payable in respect of such sales.
Capital gains tax.
An additional rate of stamp duty, on top of that which currently applies, will be payable. The stamp duty rate has been tripled.
While I accept the point that it is possible that transactions that were due to go ahead next year anyway will now go ahead in a more favourable environment, that will be offset, I believe, by the additional land and property that should be released next year as a result of this move. I am aware of specific cases where owners of property have made decisions not to go ahead with development, both commercial and residential, because of the way this policy was in the past, and I am looking to change that.
I do not want to drag this out. I reiterate the point that stamp duty is paid by the purchaser and capital gains tax is paid by the seller. Two different parties will pay the taxes. Even if they were the same, 4% compared with 33% is a big difference. Between now and Report Stage, would the Minister be willing to examine whether there is any possibility that buildings would not be part of this change from seven years to four years and merely to isolate it to land?
I might add to that before the Minister responds. Is it because section 28 amends the parent provision, which is a composite one on land and buildings, not only in Ireland but within the EU, that the Minister cannot divide them up? Is that the issue?
No. The Interpretation Act 2005 defines land as including, "tenements, hereditaments, houses and buildings, land covered by water and any estate, right or interest in or over land". I will supply a technical note to the committee in advance of Report Stage to provide all the background in relation to this.
Will Deputy Doherty accept that?
I will. Maybe we should not amend the seven year element at all. Maybe we should introduce a separate section which allows for a redefinition of land specifically, the same way we did with Irish real estate funds, IREFs. We should define land in terms of development land and allow them to pay no CGT. There must be a way because there are massive windfalls coming down here for those will sell commercial buildings next year. A huge number of commercial buildings are being sold every year. We can see that in the expectation of the stamp duty revenues coming in next year. This is quite a sizeable windfall for certain individuals without the benefit that we are looking for, which is the release of land on which to develop housing.
As against that, it is my strong expectation that, because of what is a very significant move, it will release further land for both commercial and residential development next year. This is a very significant move in how I am looking to change the taxation regime in relation to property with the objective of trying to increase the supply of land in 2018. As I said, I will provide a technical note to the Deputy and the committee outlining why I am not able to take the course of action that the Deputy is asking for.
I seek clarification on section 28(1)(b), which inserts, "Where a person disposes of land or buildings to which this section applies during the period beginning 4 years after the date they were acquired and ending 7 years after that date, any gain on the disposal of such land or buildings shall not be a chargeable gain." Is it the case, therefore, that for 2018, if a person bought land or buildings between 2011 and 2014 and were to dispose of them in 2018, he or she would be CGT free? Does that window of three years roll on? For example, in 2019, does it apply to property bought between 2012 and 2015, etc.? Is it essentially a three-year rolling window?
Yes, is the answer to Deputy Donnelly's first question. No, is the answer to his second question.
In 2019, what will the years be?
Can I come back to the Deputy on that one?
I will add a quick question to that. Does a person lose the exemption if he or she holds the asset for more than seven years?
Yes. That person would be rolling it forward. I will come back and give the Deputy-----
The person loses a portion of the exemption.
I will give the Deputy a full answer to that later on.
I move amendment No. 51:
In page 42, after line 36, to insert the following:
Financial Transaction Tax
30. The Minister shall, within 6 months of the passing of this Act, bring a report on the potential additional income that would be raised by imposing a financial transaction tax.".
This is a proposal for a report on the potential additional income that would be raised from imposing a financial transaction tax.
The model that the European Commission has looked at is a tax of 0.1% on transactions of shares and bonds and 0.01% on derivatives. Ireland has the 15th largest international financial sector in the world and the fourth largest shadow banking system. The Irish Financial Services Centre, IFSC, currently manages €1.9 trillion in assets without providing much in the way of jobs or taxes. The logic for a financial transaction tax is twofold: first, to cure volatility and speculation in financial markets, which would mean more of a focus on productive investment as opposed to short-term speculation, and second, potentially to raise revenue that can be used for any number of matters.
Dr. Micheál Collins of the Nevin institute produced a report a couple of years ago which found that the net yield would be between €320 million and €350 million when one takes into account the loss of revenue in terms of stamp duty. At a later stage, the Department of Finance estimated potential revenue of €500 million. That was the average estimate at that stage. As far as I remember, in the run-up to this budget we did not get any estimates but our figures suggested that the net sum raised by the 0.1% and 0.01% would now be up to €610 million given the growth of the financial sector.
The previous Minister for Finance always rejected this. He always said, in terms of the European Union discussions, that the Government wanted an international solution and therefore did not want a European solution, which was effectively a recipe for doing nothing and certainly not taking any initiative from the point of view of Ireland. Does the attitude of the current Minister differ in any respect?
No. Did I hear Deputy Murphy state that the financial services sector does not create many jobs in Ireland?
Has the Deputy walked through the docklands? Has he walked into any of the financial services employers who employ persons outside of Dublin? Are the 40,000 who work in more than 400 companies in financial services ghosts?
Is that the Minister's full answer? I am just getting the figures here now.
No. I hope we will debate the point, albeit briefly, but I cannot help but respond to Deputy Murphy's allegation that there are no jobs created in financial services.
I did not say, "no jobs". The point is that the IFSC, like the City of London, functions as a tax haven for international finance. If one looks at the almost €2 trillion in assets that exist there compared with the number of jobs, the gap is enormous. The average productivity of those working in the IFSC is some incredible figure that is wildly out of whack with productivity in other European Union countries because Ireland functions as part of a global network of tax havens. One side of those tax havens is the Paradise Papers. It is Panama, Bermuda, etc. Another side is the functioning of the City of London but also the functioning of the IFSC in Ireland. Let us debate that.
Then let us also acknowledge that a huge number of financial assets are located, certainly, nominally speaking, in Ireland. A huge number of financial transactions take place through Ireland and there is a significant potential revenue source that the Government refuses to look at because it is part of defending the model of Ireland being a tax haven. We dealt with this previously in terms of the amendment on a minimum effective rate of corporation tax, but the Government has the same approach to the financial sector which is at the cutting edge of tax avoidance.
Not only is Ireland not a tax haven, as acknowledged by the Organisation for Economic Cooperation and Development, OECD, which makes an adjudication and offers a definitive view on whether a country is a tax haven but in respect of the Deputy's proposal for a financial transaction tax, FTT, I cannot think of a more ill-judged time to introduce such a measure, if one was minded to and I am not, than a point when the United Kingdom is getting ready to leave the European Union and we are trying to develop Ireland to benefit in some way from its exit by increasing the number of jobs in financial services in this country.
As there is a voting block in the Dáil now I suggest that we suspend until 2.15 p.m. Is that agreed? Agreed.
I bring to the attention of the committee that, in respect of sections 22 and 24, I intend to bring forward new sections on Report Stage.
To what do they relate?
Capital gains tax. There are potentially unintended consequences of the capital gains tax avoidance measures. We put the committee on notice that they will be considered. We may also have to bring make some alterations on Report Stage to section 613 of the Taxes Consolidation Act 1997. The Minister for Finance has asked me to tell the committee that he may bring forward an amendment on Report Stage to support high performance sport. That may or may not occur, but we want the committee to know that it may arise.
Before the suspension of the sitting Deputy Paul Murphy moved amendment No. 51 to section 30. The Minister was about to reply.
In respect of carrying out a study on introducing a financial transactions tax, I refer to the joint Central Bank of Ireland-ESRI report published in April 2012 which considered the possible economic impact of the application of such a tax.
That report analyses the potential economic impact on the financial industry at that stage based on the Commission's 2011 FTT proposal. I appreciate the study may be somewhat dated at this point but the report's conclusions are a useful indicator of the possible impact of introducing a financial transaction tax, FTT, in Ireland. Given that it is Government policy not to introduce an FTT, I do not consider it prudent to allocate resources to further studies or exercises in this regard at this time.
The joint Central Bank and Economic and Social Research Institute, ESRI, report recognises that assessing the likely impact on employment and tax yields due to migration of activity is difficult. This continues to be the case as it is difficult to assess behaviour arising from the introduction of such a tax and second round impacts on investment and employment. In 2012, the financial sector's share of overall economic output in Ireland was around twice as large as that of many other European countries and in 2016 it remained a significant element within the economy in terms of employment and gross value added. There is significant employment in the sector with around 40,000 individuals employed in international financial services and 90,000 employed in general financial services. The Central Bank and ESRI report sought to identify financial services sectors that could be impacted by an FTT. It suggested that insurance, banking and financial intermediation, and fund management and security brokering were potentially vulnerable to an FTT. Fund management in particular has been one of the growth areas of the financial services sector in Ireland, with some large employers and with a total estimated 14,500 employed in the sector.
The UK intention to commence the process of leaving the European Union increases the difficulties of introducing such a tax given the potential for the UK to compete more strongly using different domestic measures for such financial services activities outside the EU. The international financial services sector in Ireland is now a truly national industry, extending far-beyond the original Irish Financial Services Centre in Dublin’s docklands. The sector generates direct employment for approximately 40,000 people across over 400 companies, with an estimated one third of those jobs located outside the greater Dublin area. It is a thriving and vibrant sector, which makes an important economic contribution to this country. Indeed, the Government’s 2015 strategy for the international financial services sector, IFS 2020, is to grow jobs to 45,000 by 2020.
The firms with the highest propensity to migrate following the introduction of an FTT are likely to be in the non-banking sectors, which account for the smallest share of gross value added. Nevertheless, it indicates that the relocation of even a small number of large international banks or fund administration firms would result in a loss of income tax revenue, corporation tax revenue and an increase in unemployment. This would likely still be the impact now of introducing an FTT. Ireland already has a tax on financial transactions, a stamp duty on transfers of shares in Irish incorporated companies, which currently stands at 1%. The yield from this charge in 2016 was €391.94 million and I understand receipts to the end of October 2017 were over €361.41 million. If Ireland was to participate in the FTT it would require us to abolish this stamp duty.
With regard to discussions at EU level, the position taken by this Government and the previous Government’s consistent position is that a financial transactions tax would be best applied on a wide international basis to include the major financial centres. This would prevent the danger of activities gravitating to jurisdictions where taxes are not levied on financial transactions with a likely loss of employment and tax revenue. Notwithstanding this, the previous Government was not prepared to stand in the way of EU member states that wished to work together to implement a financial transactions tax; in this regard, adoption of a decision formally authorising enhanced co-operation took place during the Irish Presidency of the European Union in January 2013.
In any event, despite significant engagement by the relevant Member States there has been no agreement on the introduction of an FTT and it is not clear whether agreement will be achieved in the near future. I am of the view there are potentially significant negative employment, economic, and tax yield impacts from introducing an FTT in Ireland and I have no plans to introduce such a tax. Consequently, I oppose the Deputies' amendment.
The Government's rationale for not going for an FTT is revealing, as it is a reference to Brexit. There is the possibility that the Brexit we see will be, as Mr. Jeremy Corbyn deemed it, a bargain basement Brexit, with Britain attempting a further race to the bottom in terms of tax of corporations and financial transactions etc. in the City of London. The idea is that this is a particularly bad time for Ireland to consider a financial transaction tax because Britain may be going in that direction. It is completely in thrall to the idea of a race to the bottom and the consequent logic. From that, the only people who win will be the corporations and the people who lose will be those who depend on public services around the world. That is the Government's logic.
With regard to Ireland being a tax haven, one can say something so many times one might even begin to believe it. The idea that Ireland is not a tax haven but at the forefront of the fight against tax avoidance and tax evasion does not wash. Oxfam did a report last year and found Ireland was the sixth worst country in the world in terms of being a corporate tax haven. Mr. Philip Alston, UN special rapporteur on poverty, said that nobody believes Ireland is not a tax haven. It stands in reality and a big part of that is the IFSC. The Minister previously mentioned that 40,000 people are employed in the industry but this can be contrasted with the level of assets controlled in the IFSC or supposedly located there. There is the classic example of 5 Harbourmaster Place. I am not sure what the current position is but there were €2 billion in assets and 250 companies located there but not a single employee. There is very little social benefit as a result of these activities but a way of getting a social benefit would be to have a study on and ultimately to introduce a financial transactions tax. The Government will not even consider it or having a study for that purpose, which is very revealing.
I move amendment No. 52:
In page 42, after line 36, to insert the following:
30. The Minister shall, within 6 months of the passing of this Act, bring a report on abolishing the Local Property Tax and replacing it with a Landlords’ Tax of €600 per annum on a second home and €1,000 per annum on a third and all subsequent homes.”.
This calls for a report on the abolition of the local property tax and replacing it with a landlords' tax of €600 per annum on a second home and €1,000 per annum on third and subsequent homes. We have called for the abolition of what we call the "home tax" as that is what the so-called property tax is where people live in their home. It is not an asset as wealth but it is something they need to survive. It is their shelter. That home tax should be abolished and replaced with our idea, which would raise a similar, if not the same, amount as the property tax. This would be a landlords' tax. It would raise revenue and disincentivise landlordism. Tax policy should be designed to do that. We should not have this huge transfer of wealth from the public in its various guises, directly from the State and privately in the form of rent, to a landlord class that is massively overly represented in these Houses and the established political parties.
The local property tax is designed to provide a more sustainable system of funding for local government and place the provision of local services on a sounder financial footing. The local property tax is also a significant base-broadening measure. The level of income expected to be generated by the local property tax in 2018 is in the region of €470 million.
Deputies will be aware that, under the terms of the Stability and Growth Pact, Ireland may not introduce discretional revenue reductions unless they are matched by other revenue increases or expenditure reductions. This means that the Government must consider carefully any tax changes as any reductions will have to be offset elsewhere.
As regards abolition of the local property tax, LPT, it is now well established that the taxation of property through an annual recurring tax is less economically distortionary than the imposition of tax on either income or capital. This is supported by economic literature and OECD analysis which underscores how an annual tax on land and buildings has a relatively small adverse impact on economic performance. Both international and domestic research indicate that property taxes are more growth friendly than taxes on labour.
The introduction of a property tax is part of a broader approach to the taxation of property. The aim is to replace some of the revenue from transaction based taxes, which have proven to be an unstable source of Government revenue, with an annual recurring property tax, which international experience has shown to be a stable source of funding.
In the local property tax we have a stable source of funding which is fair and progressive with the owners of the most valuable properties paying most. The tax is equitable, has reference to ability to pay, conforms to international norms and significantly broadens the domestic tax base.
We have seen in the past how over-reliance on revenue from transaction-based taxes, such as stamp duty, capital gains tax and capital acquisitions tax, led to a significant fall in tax revenue when the number and value of transactions decreased sharply from 2007 onwards as a result of the economic and banking crisis thus creating enormous problems for Ireland’s fiscal position. I understand that a tax on second and subsequent non-family homes levied at €600 for the second homes and €1,000 on all subsequent properties would have an annual yield in the region of €229 million. This is based on those properties indicated to be non-principal private residences by their owners in their LPT returns. I am also informed that the estimated cost of abolishing the LPT in 2018 would be in the order of €470 million, based on my Department’s latest official forecast of LPT receipts for next year.
The difference between these figures is over €240 million. As I have outlined earlier, that amount would need to be made up for in other taxation measures, and as such I oppose the Deputy’s amendment.
Is Deputy Murphy pressing his amendment?
With the permission of the Chair, may I make a separate point on accidental landlords?
I wish to use the opportunity to raise the issue of accidental landlords. I appreciate it is tangential to the amendment, but deals with the taxation of landlords.
For several years I have tabled amendments to try to create an exemption for accidental landlords to stop them from being double taxed. This year I want to raise it and have a short conversation on it on Committee Stage in the hope that the Minister of State, Deputy D'Arcy, and the Minister will introduce a Government amendment on Report Stage. I am meeting the Minister, Deputy Donohoe on this matter later this week.
Let me take a brief moment to explain what is involved here. Some people bought very small houses or apartments prior to 2008, when they did not have any children or perhaps one child. They are in negative equity and now, ten or 11 years on from that, they have growing families. They are in a trap. The apartment which they own is too small. I spoke to a family with young children living in an apartment not too long ago and they were wondering if their children would climb up and jump over the balcony. They were not at all comfortable with raising their children in the apartment in which they lived. People in this situation cannot sell the property because they are in negative equity. They have one of the following options. First, they can remain in the property and try to raise their children in a property that arguably was not designed for raising children and in which they are not comfortable for their children to be raised. Second, they can move out and rent out their apartment and try to find a two or three bed semi-detached house somewhere further out. While their household finances have not changed at all, they are earning the same amount of money, and are paying out in rent the same as they receive for the rent of their apartment.
The problem with this scenario is that their rental income is taxed at the marginal rate. I have provided analysis to the previous Minister for Finance that showed that many people under very modest assumptions end up with tax bills of €5,000 to €6,000. They are trapped. They can do one of two things if they want to move, they can move and hope that the taxman never finds them because they do not have the money to pay or they can move and pay the tax bill. I have dealt with a number of cases where the couple's ability to save and dig their way out of negative equity is wiped out because all their saving goes in paying the huge tax bill that materialises. They are trapped. I know people who have left the country and moved abroad in order to be non-domiciled in the hope that it will all work out. It is that serious.
People's lives have been destroyed by this trap that has continued for ten years. The tax system was never meant to do this. The notion of negative equity creating accidental landlords was not considered when the taxation of rental income of landlords was considered. I put it to the Minister of State that it is an unintended consequence of the tax system.
When I previously tabled amendments to address this issue before, the then Minister for Finance, Deputy Michael Noonan, came back and consistently refused to accept them on the basis that it could be a loophole for other people to avoid paying taxes. He said it was too easy to game the system. Last year when I had this conversation with him, he laid out specific issues he had in terms of people being able to abuse it. These people were not in fact accidental landlords at all. I have met nobody in Government or anywhere in the House who believes that in the specific kind of case to which I have referred, the genuine accidental landlords should be taxed an extra €5,000 or €6,000. Nobody thinks that is just or right, or good for the children and their parents.
We need to construct an amendment that stops people gaming the system. Last year I did that and I got expert input as to how we could deal with the issue of gaming the system for the Report Stage amendment I tabled. The conditions were as follows. First, the property had to have been bought between 2002 and 2008 and no more than 113 sq. m in size, which is the average size of a three bed semi-detached house. Second, the property that the family were moving to had to have more bedrooms than the property from which they were moving, the logic being that they were moving to a larger premises to raise their children. The people in question could only own one property. Third, the property they were moving from had to have been purchased as their principal private residence, so it could not be an investment purchase and they had to have lived in the property for at least two years, they had to have been first-time buyers when they bought the property and they had to be moving fulltime into the new rented property and they could only deduct as much from the rental income as they were paying out in rent. This all amounted to a very restrictive provision, which basically said that if one was a first time buyer who bought a very modest apartment in 2005, lived in it for several years and did not own anything else and was in good faith moving to a larger property in order to raise a family, then one would not be penalised for doing so. There is no way in which one can benefit and one could reduce one's tax liability from what one was paying when living in the apartment. I will provide this amendment to the Minister of State, Deputy D'Arcy, and the Minister, Deputy Donohoe.
People in this situation have been through hell for ten years. Their lives have been destroyed and they have been caught by something that was never intended to catch people. It is particularly galling when we look at the scale of the tax breaks that property developers, investors and land got, yet these people have been destroyed.
I thank the Chairman for allowing me to raise this issue. My hope is that between the Minister of State and the Minister, a Government amendment will be tabled on Report Stage so that finally this cohort of people can get some relief ten years on from the trap that they are in.
Will the Minister of State note that point?
I remember Deputy Donnelly raising this issue in the past number of years.
While I am not committing to anything, I would appreciate if the Deputy could provide me with that note. He is going to speak with the Minister, Deputy Donohoe. I will also speak with him. I will not commit to advancing anything, but we will certainly look at the Deputy's suggestions.
I move amendment No. 53:
In page 42, after line 36, to insert the following:
30. (1) The Minister shall, within 6 months of the passing of this Act, bring a report on additional revenue that would be raised by introducing a Millionaires’ Tax of 2 per cent on net wealth exceeding €1 million.
(2) The Minister shall, within 6 months of the passing of this bill, compile a national database on the distribution of wealth and assets.”.
Amendment No. 53 seeks to have a report carried out on what we call a "millionaires' tax", which is a tax on net assets exceeding €1 million. Linked to that, the amendment provides for the compiling of a national database on the distribution of wealth and assets to allow accurate information be compiled on what a wealth tax would raise and, ultimately, to allow such a tax to be implemented. This is linked to a global crisis of rising inequality. I am sure the Minister of State has seen the Oxfam figures which indicate that, two years ago, approximately 160 people controlled the same amount of wealth as the bottom 50% of the world's population. That dropped to 8 people last January and had decreased to 6 people in February. Inequality is rising at an extremely rapid pace and wealth is being concentrated in very few hands.
The same is reflected in Ireland. There are different studies here, including the CSO's household finance and consumption survey of 2013. The Think-tank for Action on Social Change, TASC, analysed this survey in its report The Distribution of Wealth in Ireland. There was also an ESRI working paper in 2016. From that information it can be concluded that the top 1% of the population in Ireland holds 14.8% of the total wealth, the top 5% controls 37.7%, the top 10% controls 53.8% and the bottom 50% controls less than 5% - only 4.9%. Separately, the Central Bank currently estimates household net wealth at €654 billion. That figure has increased dramatically over the course of the last year. According to the Sunday Independent rich list, the 300 richest people have effectively doubled their personal wealth from €50 billion five years ago to €100 billion at the moment.
Ireland is an enormously wealthy country. The issue is that wealth is owned and controlled by a very small number of people at the top, hence the proposal for a millionaires' tax. We did the maths and, taking the Central Bank's figures for overall household net wealth and breaking them down according to the figures we have on the distribution of wealth, we determined that a 2% tax on net wealth exceeding €1 million would raise €3.238 billion. That would affect only the top 5% of wealth holders in the economy - fewer than 85,000 households.
The Government has no plans to introduce a wealth tax, although all taxes and potential taxation options are of course constantly reviewed. Wealth can be taxed in a variety of ways, some of which are already in place in Ireland. Capital gains tax, CGT, and capital acquisitions tax, CAT, are, in effect, taxes on wealth, as they are levied on an individual or company, on the disposal of an asset in the case of CGT or the acquisition of an asset through gift or inheritance, in the case of CAT.
The local property tax, LPT, which was introduced in 2013, is a tax based on the market value of residential properties. The domicile levy introduced in budget 2010 also constitutes a form of wealth tax. It is aimed at high wealth individuals with a substantial connection to Ireland, whether they are tax resident or not, to ensure they make a tax contribution to this country in a year of at least €200,000. The rate of deposit interest retention tax, DIRT, on deposit accounts is now 39%, having been 41% from 1 January 2014 to 31 December 2016. It was reduced by 2% in budget 2017, which also provided for further 2% cuts from 1 January in each of the next three years, so that the rate of DIRT will be 33% from 1 January 2020. There is a stamp duty levy on the transfer of shares which yielded €391.94 million in 2016.
As part of the joint research programme agreed between the Department of Finance and the Economic and Social Research Institute, ESRI, covering macroeconomic and taxation issues, a research project involving detailed analysis of household wealth distribution in Ireland and taxation was recently undertaken. The research was based on data collected by the CSO in 2013 as part of the household finance and consumption survey and involved analysing a wide variety of wealth tax scenarios, including scenarios based on wealth taxes currently in operation in a number of European countries that could hypothetically be applied to households in Ireland. The research aimed to provide as comprehensive an analysis as possible of the wealth holdings of Irish households as of 2013 and the potential implications that a wealth tax could have if applied on the prevailing structure of assets and household composition.
To provide a broad range of estimates and to illustrate the different effects of adjusting threshold levels and including or exempting specific assets, wealth tax revenues and households liable were calculated using two different approaches. The first took the existing wealth tax structures of a number of European countries and applied them to the Irish household structure. The second used a range of hypothetical combinations of threshold level and asset exemptions to go more deeply into their respective impacts on the revenues and numbers of households that would be liable under different tax designs. The aim was not to make recommendations on any particular system but rather to provide a broad range of estimates to demonstrate the factors that would need to be considered in formulating a wealth tax and how they would impact on the overall tax returns and the numbers and types of households that would be affected.
The results gave a wide range of possible scenarios. Applying other countries' models showed how variations in the exemptions and thresholds could result in less than 1% up to almost 50% of households being liable to a wealth tax. The alternative scenarios investigated show that varying the level of the threshold was the key determinant of the number of households which would be affected, which is in keeping with the concentration of wealth at the upper end of the wealth distribution. Given the numbers of households affected, the treatment of the household’s main residence, which is the largest asset for almost all households apart from the very wealthiest, is an important factor in the level of average tax payment and hence total revenues raised. Looking at the composition of households under the different tax scenarios, it was found that even with a narrow base and high threshold, some households in low income deciles were affected. This is because of the imperfect correlation between income and wealth. Applying an income restriction would remove many of the lower decile households from the tax net in most cases but would also reduce the numbers liable in the higher income deciles as well.
Wealth taxes form part of a broader taxation system and may operate as both complements to and substitutes for to other forms of taxation. The potential implications of wealth taxes would need to be considered in conjunction with the burden of these other taxes. From the wide variety of scenario outcomes, in terms of the tax base, revenue raised and the number and characteristics of households that can be affected, it is evident that the impacts of a wealth tax in Ireland would depend crucially on the detail of its design. The extent to which a value can be assigned to an asset varies substantially. For instance, it may not be possible for an individual to value or sell his or her human capital or pension funds, which can comprise a significant proportion of wealth. Additionally, accurately valuing assets which are not regularly bought and sold can be administratively burdensome.
The Department of Finance will continue to monitor and consider any additional information and data that comes to light and will continue to examine potential taxation sources on an ongoing basis. Having regard to the foregoing I do not intend to support this amendment.
Obviously the Government's response does not surprise me. To pick up on a couple of points, the idea that being unable to value assets is a major obstacle to a wealth tax does not seem to be credible because there are wealth taxes in other countries, for example, France. They are not at the level we are proposing but they exist, they operate and people pay them. Any difficulties in the valuation of assets and so on are overcome in these cases. The Minister of State is correct when he says that there is an imperfect correlation between income and wealth.
Five minutes ago he argued that the property tax was progressive because people with more expensive homes pay more. I agree there is an imperfect correlation but that is precisely why the idea of having a ceiling or a net level of €1 million under which one pays no wealth tax deals with that problem. I do not believe there is any one in this country in a low-income decile who has more than €1 million in net assets. The net aspect is important. People can have big homes and so forth but they also have debts that go with them, generally. The €1 million in net assets is quite generous in terms of an allowance. The tax would not be applied until people go above that point.
Ireland is a very unequal society. Indications are that the distribution of wealth is more unequal than the average across the EU. This is one of the measures which would address that inequality but the Government has repeatedly ridiculed it and suggested that it is in no way feasible. I just do not accept that.
I support the concept of a wealth tax, as the Minister of State knows. I drafted legislation to provide for same but I do not support the proposal that is here. I believe the rate is too high and the tax is too broad. That being said, the principle is still there and I support that principle. The Minister of State's response was not surprising because it is very clear that this Government is not willing to look at any tax measure that applies to the elites, whether it is a wealth tax, closing down section 110 entities or making the banks, which are hugely profitable again, pay taxes. The latter two proposals were blocked by the Government with the support of Fianna Fáil. As the news was filtering through to the boardrooms of the banks that Fine Gael had blocked Sinn Féin's amendment aimed at ensuring that the banks paid an appropriate level of tax this year, next year and every year thereafter, Bank of Ireland was putting the finishing touches to a statement that it has just released acknowledging that it had screwed over another 6,000 Irish tracker mortgage customers. This is in addition to the 4,300 customers who were denied a return to their tracker mortgages. We understand, as does the Minister of State, the hardship those customers went through and we have just learned that another 6,000 customers were similarly affected. This is the type of institution or company that the Government has decided, in the context of votes cast in the last few minutes, should not be paying any tax. However, having read the CEO's statement, we still have no certainty as to when those individuals will be compensated and when the compensation process will be completed. The CEO refers to a "pathway", but there is no end date in sight for those 6,000 additional customers on top of the original 4,300. This is the kind of individual thinking with which we are dealing, but the Government has decided not to tax the bankers and other elites in society. I would welcome the Minister of State's views on the fact that Bank of Ireland has not set out clear timeframes for the compensation of the additional 6,000 tracker victims that it has acknowledged today.
I do not intend to get into the tracker debate during our deliberations on the Finance Bill. Quite a lot of work has been done on that issue, as the Deputy is aware. The banks met the Minister for Finance, Deputy Donohoe, a number of weeks ago and it was agreed that 12,000 of the 13,000 customers who were identified at the end of September would be paid before the end of this year. We expect the banks to do that. That is the position. I have not seen the 6,000 figure that the Deputy has quoted so I do not intend to get into that debate now.
In terms of a wealth tax, that is not something we intend to do. This Government has said that it is not going to implement a wealth tax. There are already taxes on wealth, including capital gains tax, capital acquisitions tax, stamp duty and the local property tax. The vast majority of wealth in this State is in people's principal primary residence and there is a low rate of tax on that. The local property tax brings in €470 million. We discussed it a few moments ago. If Deputies want to tax wealth, that is where the bulk of the wealth in this society is held. If they are proposing to increase the property tax, that is a proposal with which I do not agree. We have a low rate of property tax and I am glad that it is low. That said, it has broadened the tax base. Capital gains tax, DIRT and stamp duty are also wealth taxes and they bring in about €2 billion per year out of a total of approximately €60 billion. These are our wealth taxes. If the Deputies are arguing that they should be increased, that is an argument we could have but that is a separate conversation. It is not part of this Finance Bill or this budget.
Is Deputy Murphy pressing his amendment?
I would like to have a discussion on one of the sections that deals with the sugar tax. Section 30 and subsequent sections deal with the sugar tax, which I would like to discuss further.
Is the Deputy referring to section 30?
Yes. I am not in favour of this so-called sugar tax and am not convinced by the arguments for it at all. We tabled an amendment that was ruled out of order and which we may resubmit on Report Stage. That amendment sought a report on the impact of the tax after its implementation and an assessment of how regressive it is as a tax. There has been debate and some research on so-called sugar taxes in the US which concluded that people of colour and people on low incomes were hit substantially harder by what was called the soda tax in America. I believe that would also be the case here and that this would be another regressive tax. That does not mean that I am in favour of soft drinks or soft drinks companies. On the contrary, I agree with all of the analysis that points to the major role that they play in childhood obesity in particular, but it is a question of how we deal with that. Do we impose an indirect tax which, based on evidence from the US, will overwhelmingly be passed on to consumers or do we regulate the industry by ensuring, for example, that vending machines are not allowed in schools, community centres and so forth? Do we have a ban on advertising of highly sugared drinks at sporting events, which is something that is also being discussed with regard to alcoholic drinks? Do we tax those corporations directly, which I favour, as opposed to taxing the consumers in the manner proposed in this Bill?
If the Government were serious about tackling obesity, it would be looking at issues like physical education in schools. Children in primary school in Ireland only get an average of 46 minutes of physical education per week but they get two and a half hours of religious education per week. Experts recommend an increase of at least 90 minutes per week in physical education. If the Government is interested in health promotion, then it must engage in such promotion as opposed to introducing new, regressive taxes that will hit those on low incomes the hardest.
I will read the note on the tax on sugar-sweetened drinks. Chapter 1 of the Bill provides that a sugar-sweetened drinks tax will apply when such drinks are first supplied in the State. The introduction of this tax forms part of the Government's comprehensive plan, A Healthy Weight for Ireland, which aims to tackle the obesity and overweight problem in this country. The tax will apply to non-alcoholic water and juice-based drinks which contain added sugar and which have a total sugar content of 5 grams or more per 100 ml. Liable products will be identified by reference to the combined nomenclature classifications of goods to nutritional information required under the EU-wide food labelling regime.
I am not quite sure what the word "nomenclature" means. However, it refers to classifications of goods and to nutritional information required under the EU wide food labelling regime. The tax is to be charged when sugar sweetened drinks are first supplied in the State by a supplier and that supplier will be responsible for the payment of the sugar sweetened drinks tax. A relief may be granted, by way of repayment, where liable products that have previously been supplied in the State are subsequently supplied outside the State. Provision is also made for products exempted from certain food labelling requirements to be excluded from the scope of the tax.
There will be two rates of tax, with the lower rate applying to sugar sweetened drinks with a sugar content of 5 g or more but less than 8 g per 100 ml. The higher rate will apply to liable products with a sugar content of 8 mg or more per 100 ml. The charge will, when VAT is included, amount to 20 cent and 30 cent per litre for products liable for the lower and higher rates, respectively.
The yield from the sugar sweetened drinks tax, when VAT is included, is expected to be around €40 million in a full year. The tax will be commenced by ministerial order no later than April 2018 and after the necessary formal approval from the European Commission that the measure is free from state aid.
I hear what the Deputy is saying but it is the final piece of the action plan on obesity by the Department of Health. Effectively, the Deputy has said that the tax is a blunt instrument but I contend that it is a start. If the provision does not do what we hope it will do then it can be looked at again. It is certainly the direction in which we intend to move. Our experience is the more one taxes unhealthy products the less they are used and we think it is the right direction.
Has the Department conducted a study on the impact the tax will have on different income groups which it would hit particularly hard?
I have read the arguments put forward. One of the purposes of the tax is to encourage people to switch from drinking full sugar soft drinks to other drinks be they diet drinks or other types of drinks. I hope people would choose water as it is the best option. I accept that the dangers are lesser. However, artificial sweeteners are not without their problems, although I accept that they are probably lesser than the problems associated with sugar. By disincentivising the consumption of very highly sugared soft drinks the Government is incentivising consumption, relatively speaking, if people want to get the same taste, of saccharine and aspartame. A number of studies have indicated that there are health risks associated with both. Has the Department considered the matter?
Perhaps it is just a turn of phrase. Is this really the finishing piece of the Department of Health's action plan on obesity? It has not had much of an impact, in terms of all of the things that could be done. Even if I agreed with this taxation measure and thought it would have a substantial impact and was not concerned about it being regressive, I would still have a serious question mark over this tax being the finishing piece. Surely there are many more things that can be done, not least the question of physical education.
I agree with the Deputy, fundamentally, in terms of physical education in schools but the matter is outside the scope of the Finance Bill. The sugar tax is a new strategy and the Department of Health has requested that the tax be implemented.
We have some more information. Some matters in other jurisdictions have been assessed. There was an evaluation of the impact on consumption. The Mexican sugar sweetened drinks tax indicated that consumption fell in response to the tax and it fell more sharply for those people in low socio-economic groups. That is the type of information we have available to us.
The objective is not to get more money from people in lower socio-economic groups. The objective is to reduce the consumption of sugary drinks. In terms of cases where consumption has decreased, in the previous budget it was announced that a sugar tax would be implemented in this current budget. We ask that the provision be given a fair chance. We think the tax goes in the right direction but only time will tell.
What about artificial sweeteners?
I am advised by the Department of Health that the available evidence on health impacts is not currently sufficient to justify the inclusion of artificial sweeteners. The tax will of course be kept under review.
Can we vote on section 30?
We have dealt with section 30.
What section are we currently discussing?
I dealt with section 30 and then I moved on to section 31 but the debate has moved back.
Let me pick which section is best to vote on. Can we vote on section 31?
We have dealt with the matter.
Yes, I appreciate that.
I know I moved on quickly. With the permission of members I shall ask the following question. Do they want to go back?
Let us call a vote on one of the sections. Section 30 would be the best as it is substantial.
Is that okay?
I would like a vote called on section 31. Section 30 is just the interpretation.
The Deputy was so anxious to have a vote on section 30 that I decided to let him go ahead and I did not want to upset him.
- Brophy, Colm.
- Burke, Peter.
- Burton, Joan.
- D'Arcy, Michael.
- Doherty, Pearse.
- McGrath, Michael.
- McGuinness, John.
- Murphy, Paul.
Amendment No. 54 is out of order.
Amendment No. 55 is out of order.
Does section 44 deal with cigarettes?
How does minimum excise duty work? We received a presentation recently and those involved referred to the market response in terms of cigarettes, in particular the strong volume growth at the lower end of the market where there is value, in that cigarettes are being sold more cheaply. They argued that the full 50 cent excise increase is not fully evident in that sector. Is that linked to the minimum excise duty? It has never been changed. There is a flat line. More tax would be taken if the minimum level was triggered. The tax strategy group suggested increasing the minimum excise duty of €7.75 per pack, but that has not been followed.
Effectively, the Chairman is saying that the full increase is not being charged on the cheaper packs.
It is not having the impact of collecting the full increase. Is that connected to the minimum excise duty? There is an increase in the volume of sales at the lower end of the market. The minimum excise duty has not been touched. If it was touched, it would mean that those at the lower end would pay.
The analysis shows that we are not seeing a significant increase in the lower end of the cigarette market.
When was that analysis carried out?
The matter is kept under constant review.
That is different from an analysis. Was an analysis carried out? In the presentation we received, which I understand was circulated to members, growth was shown to be particularly significant at the lower end of the market. We received the presentation because of competition in the marketplace and growth at the lower levels. Those experiencing a loss in the purchase of their products are complaining. Behind that story one can see the relevance of the minimum excise duty question. It is not being touched. As I said, the tax strategy group said it should be. It also means that the full 50 cent excise duty increase on a packet of 20 cigarettes is not fully evident in a sector where there is significant growth.
No, we have been told that there has not been significant growth in the lower end of the cigarette market.
That is what the Minister of State is saying. That is what he has been told.
That is what Revenue is saying.
Let us be clear about it. Revenue is stating that there is not significant growth in that end of the market because the figures for those in business show significant growth at that end of the market. It makes sense because of the nature of the economy.
Let me have a look at this between now and Report Stage. Is that fair enough?
Will you come back to us?
We will get a note on it.
If there is analysis, let us have it. If there is a Revenue comment or examination - as you have said, from time to time the Revenue examines the matter - then let us have the full details so that we can make a comparison between what Revenue and the industry are saying.
I imagine that because of the competition within the industry now, those involved know where the market growth is. Therefore, it is a question of whether the bigger companies move to that end of the market, where they do not want to be, or whether those in the market at the lower end feel the same pinch and are forced into the upper end. It may be a question of competition between companies but it is a Revenue issue as well.
The only distortion of that analysis is, potentially, the impact that illegal cigarettes have on the entire market.
I am talking about legal purchase of cheap cigarettes.
The illegal market is growing too and there has been some success in that regard. Anyway, I want to get a report from you before Report Stage on the matter, please.
I have raised this before so I will not dwell on it. The Government is relying on an increase of €60 million in taxation with this measure. Is that correct?
What was the question?
The Government is relying on this increase in excise duty bringing in €60 million. Is that right?
The estimate is almost €64 million.
Revenue tells us that an increase of 50 cent on a packet of cigarettes and similar increases on rolled tobacco, cigars and other smoking tobacco could lose €40 million or could bring in as much as €64 million. A range applies in this case. The Minister of State has decided again to go with the upper end of the range.
I have looked at figures from 2007. I know there was a change in the middle in the percentage on the retail price. Let us consider the rate of duty on tobacco products for 1,000 cigarettes. In 2007, the figure was €151. I have no wish to bombard the committee with figures. The corresponding figure went up to €288. During that period the amount of excise paid on cigarettes came down. Indeed, excise on cigarettes had been falling all during that period bar the past two years and, in the case of one of those two years, the change is explained because of plain packaging.
I am pointing out that the Government cannot go with the €64 million figure. It simply does not stack up. There is a point where people will stop smoking cigarettes, and that is important. This should be done for health promotion reasons and not to raise money. However, the Government has decided to go with the upper end of the Revenue's expectations. The Government did the same thing between 2015 and 2016. The actual increase in excise duty during that period was €16 million. In previous years, the figure dropped significantly. I hope that next year the figure will drop significantly as well, but the Government is banking on everyone staying smoking and buying the more expensive cigarettes, and that is not the case.
I am aware of the possibility that an increase in the price of cigarettes could result in a disproportionate change in consumer behaviour and this is reflected in tax revenue provided by Revenue. While receipts for 2016 finish below forecast, it should be noted that the receipts finished ahead of the 2015 outturn.
How much did they finish below forecast?
I am reading out the note. In the context of €1,098 million in total receipts, the deficit behind the 2016 forecast was 5%.
It should also be noted that forecasting yields is becoming increasingly difficult with continued irregularities and fluctuations in tobacco clearances and tax receipts. While overall yields have continued to rise over the past three years, issues such as front-loading and a projected decrease in smoking prevalence have made accurate forecasting more problematic.
While 2016 has been an exception, in recent years traditional tax revenue forecasts, using the same price elasticity as used for the 2018 forecast, were in fact realised and projections for 2017 point to a similar positive outcome. In this regard, Revenue has indicated that a large volume of tobacco products are being cleared from warehouses and that an increase in receipts is expected for the remaining months in 2017.
Current estimates for revenue are that tobacco receipts will meet this year's forecast by the end of the year. All in all, I am satisfied that the forecast is solid. If there is a more dramatic shift in the level of consumption than the evidence points to at the moment, it will be welcome from a health perspective and the over-riding health policy. The figures are essentially on target for 2017. The figures for 2016 were over forecast while the figures for 2015 were under forecast. That is the position for the past three years. The figures for 2016 were below and for 2015 they were above forecast.
Obviously, time will tell in respect of the outturn. It is also a question for Revenue. Revenue has given us a range of minus €40 million to plus €64 million, which is a range of over €100 million. We see the elasticity year-on-year and therefore Revenue needs to tighten up on the range. We do an alternative budget. We argue that nothing will come. We take a mid-point, which is zero, basically. The Government takes the approach that because this is in the context of a €50 billion or €60 billion budget, it will be able to find the €60 million in question, even if it does not come in on target. Anyway, we will see if the evidence supports it. Will the Minister of State provide us with the outturn expected for 2017? I presume the outturn for 2017 is 1.16%.
Is Deputy Doherty putting 5% on it?
No I am referring to the €16 million that the Government argued would bring in last year.
The figure is 1.2%.
Will the Minister of State give us the figures relating to the expected outturn for 2018 as well?
The 2017 figures look like they are on target. The 2016 figures were 5% over-estimated. The 2015 figures were under target as well.
Being on target is a complete failure in terms of public policy.
Absolutely, I accept that.
It is good for Revenue.
Absolutely but the objective, like the sugar tax, is to tax unhealthy actions hard.
The purpose of this, presumably, is to broaden the section to ensure that all forms of electronic gambling using Internet devices, telephones, tablets, etc., are included. The idea is to cover everything that the Government currently believes will apply.
I move amendment No. 56:
In page 49, line 32, to delete “1 April 2018” and substitute “31 July 2018”.
The amendment delays the implementation date of section 48 by approximately four months and is being made following representations from the motor industry to the effect that, due to vehicle purchase lead times and the cyclical nature of motor sales, this additional period was needed to allow stock ordered before the announcement date of the intended legislative amendment to clear through the supply chain.
Many businesses involved in the sale of motor homes wrote to the committee about vehicle registration tax, VRT. They compared the sale of such vehicles in the United Kingdom with their sale here and made the point that they would be able to double or treble their business if VRT was eliminated or reduced significantly. Has the Department examined the matter? What is the position as it applies to motor homes?
Is the Chairman saying motor homes should be exempt from VRT?
The companies involved are making the case that, on average, a new motor home costs almost €100,000 - that is the ballpark figure - and that, between VAT and VRT, the Government's take is approximately €29,000. They are trying to compete in a difficult market and suggesting some relief would give them a fighting chance. Was the submission which was made through the committee examined by officials in the Department? These are small businesses that employ perhaps 20 or 30 people. The Minister of State might revert to the committee on the issue.
The departmental officials say they do not recall receiving that submission.
It was sent to the Department. I will give the Minister of State a copy of the submission and he might let me have his views on it in order that we can come back to it again before we finish our consideration of the Finance Bill.
Before me move on to the next section, the Department is also responsible for the primary medical certificate. Has it ever reviewed how the scheme operates and how restrictive it is in qualifying for relief under it? Are there plans to widen it? It is almost impossible to deal with. May we receive a note on it, with background information and perhaps the reasons it will not happen or will remain as it is? I think every Member of the House would have a complaint about how tight it is.
Amendments Nos. 57 and 58 are related and will be discussed together.
I move amendment No. 57:
In page 50, between lines 6 and 7, to insert the following:
“Disabled Drivers and Disabled Passengers (Tax Concessions) (Amendment) Regulations 2015
50. Section 92(5) of the Finance Act 1989 is amended by adding:
“ ‘qualifying organisation’ means a charitable organisation within the meaning of the Charities Act 2009 (No.6 of 2009) that is—
(a) entered in the register of charitable organisations under Part 3 of that Act, and
(b) engaged in the care and transport of severely and permanently disabled persons.”.”.
This relates to the issue the Chairman has just raised, the disabled drivers and disabled passengers tax concessions scheme. As public representatives, we all receive representations on the issue of the primary medical certificate. However, I wish to refer to a particular aspect, the definition of "qualifying organisation" in the regulations mandated under the Finance Act 1989. The definition states an organisation is a qualifying organisation for the purposes of the scheme if it is "chiefly engaged in the care and transport of severely and permanently disabled persons". The case that has been brought to my attention involves a school. All of the pupils attending it have special needs and a good share of them are profoundly disabled. As I understand it, the school, which is a registered charity, wants to buy a bus, but it is being told that it falls outside the definition in the regulations because it is not "chiefly engaged in the care and transport of severely and permanently disabled persons"; therefore, it cannot avail of the scheme. I am sure the spirit of the scheme provides for such an organisation to be accommodated. The purpose of amendments Nos. 57 and 58 is to deal with this situation.
I strongly support the two amendments tabled by Deputy Michael McGrath which are reasonable, contained and confined. Unless Revenue or the Department can show otherwise, I do not believe the amendments would constitute a mechanism that would facilitate the widespread abuse of the scheme. As the Chairman said, in terms of their quality of life and access to the ordinary activities of life which, by virtue of their disability, may be confined somewhat, these are enormous issues for people with disabilities and institutions and organisations dealing with people with a serious and permanent disability; as such, I do not understand the approach being taken. For many years I have assumed that it relates to a risk of abuse which has never been defined. If it is possible to receive some clarification as to what exactly is the problem from the point of view of the Department and Revenue, perhaps we might be able to fix it. The census and social welfare statistics and so on show that a significant number of adults and children have a disability. This means that the scheme which is not easy to access and not transparent and effective is putting another barrier and enormous difficulty in the path of people with disabilities. Like other members, I can produce examples where, in some cases, people eventually qualified but in others they have never fully qualified.
I would like to hear from the Minister of State on this matter. Time has passed and it is now possible to carry out a lot of data collection and identification processes. For example, the development of the public services card should allow for relatively easy verification. In the school about which Deputy Michael McGrath was speaking the parents of a majority of the children would be in receipt of domiciliary care allowance. In the case of adults, those concerned are receiving a disability allowance from the Department of Employment Affairs and Social Protection. There are ways and means to cross-check data. For instance, to receive a permanent or long-term payment such as domiciliary care allowance from the Department of Employment Affairs and Social Protection, whether for a child or an adult, there is a recognised medical evaluation procedure and an examination of the applicant's means. All of this process is now computerised and there are programmes which, with the permission of applicants, allow the cross-checking of their data which Revenue accepts for other tax purposes. Because of developments in the use of technology in the public service, I am at a loss to know why this is such a problem, given that it has been dealt with in other areas.
The Department of Education and Skills has also done a lot of similar work in the case of special educational needs organisers, SENO. There is a huge volume of work being done in the public realm that should allow much easier verification of these data. I do not believe preparation of a report, as proposed by Deputy Michael McGrath in the amendment, would in any way pose a threat to the budget. I cannot understand why it is not possible for the Minister of State to accept the proposal in principle and come back on Report Stage with his own draft of what might be acceptable. It is past time we addressed this problem which is an enormous one in people's lives, particularly the parents of children with a disability.
I support the amendments which do not deal with the primary medical certificate issue raised by the Chairman. It is very difficult for a public representative to have to tell a constituent who believes he or she falls into the category of disabled person and is therefore eligible for the scheme that there is nothing that he or she can do for him or her because of the rigidity of the scheme. The entire area needs to be reviewed. The amendments are worthy of support. The wording of the provision should be changed from "chiefly engaged in the care and transport of" to "engaged in the care and transport of". That would be a fair definition. Claw-back mechanisms could be introduced to deal with organisations which ceased to be so engaged. It is important that we support organisations involved in the transport and care of people with permanent disabilities.
The amendments concern access to the disabled drivers and disabled passengers scheme which plays an important role in increasing the mobility of citizens with severe physical disabilities. The scheme is a significant tax expenditure, costing approximately €65 million in taxes forgone and grant payments in 2016. This figure does not include the revenue forgone to the local government fund in the relief from motor tax provided for members of the scheme. In accordance with SI 353 of 1994, registered charitable organisations are eligible to become members of the disabled drivers and disabled passengers scheme where they are chiefly engaged in the care and transport of disabled persons who have obtained a primary medical certificate.
The effect of the amendments, in removing the word "chiefly", would be to significantly broaden access to the scheme for charitable organisations. This could open up the scheme to organisations that are not primarily involved in the care and transport of persons with disabilities. As such, it could result in a poorly targeted scheme and also a large additional liability for the Exchequer. Deputy Michael McGrath will be aware that the criteria for the scheme are necessarily precise and while this means that many persons with more general mobility disabilities do not qualify for the scheme, given its scale and scope, I have no plans to change the eligibility criteria. The Deputy will also be aware that the Minister announced in the budget the introduction of a new VAT compensation scheme for charities in recognition of the work undertaken by the charities sector. This will provide an avenue of relief for such charities.
I am not entirely comfortable with that reply. If Deputy Michael McGrath withdraws the amendments, I will consult the Department on the issue with a view to possible changes being made in the regulations. I will do the best I can to improve the scheme as it stands.
I thank the Minister of State. I am happy to withdraw the amendments in the hope we can make some progress on the matter between now and Report Stage. I am not seeking a radical redefinition of what has already been provided for. I can understand the Department's concerns, but there are schools the pupils of which all have special needs and many of whom have profound disabilities for whom a specially adapted bus is required. I am aware of a particular case which led to my tabling of the amendments. This applies to other schools also. I accept that the definition needs to be tight and that the proposed change would have consequences, but it would be mean-spirited not to move on an issue such as this. I will withdraw the amendments and discuss the matter further with the Minister between now and Report Stage.
I move amendment No. 59:
In page 50, between lines 6 and 7, to insert the following:
“Taxation treatment for self-employed contractors
50. The Minister shall within 6 months of the passing of this Act, prepare and lay before the Oireachtas a report assessing the taxation treatment of travel and subsistence expenses incurred by self-employed contractors, including but not limited to a comparison between the treatment in Ireland and other EU Member States and an impact assessment on foreign direct investment.".
This amendment relates to independent professional contractors, not bogus self-employment. It is about professional contractors who provide IT, engineering, pharma, bio-pharma and other services on projects and who, on that basis, are classified in tax legislation in Schedule D, Case II as distinct from Case I. The issue I am raising is that of the treatment of the travel and subsistence expenses they incur, not flat rate claims and so on. A question arises as to whether persons who are legitimately self-employed are incurring these expenses wholly and exclusively for the purposes of their work, the current definition used. There is an additional leg to this test for employees in that their expenses have to be incurred necessarily as well as wholly and exclusively for the purposes of their work. What is the attitude of the Revenue Commissioners and the Department to this cohort which is not huge in number who are self-employed and centrally involved in delivering major capital projects for companies in the pharma, bio-pharma and IT sectors and so on? In a situation where a self-employed person based in Cork travels to Dublin to work on a project for a number of weeks or months and pays his or her own accommodation and travel costs, should such costs be allowed as an expense for tax purposes?
Those raising this issue, including the consulting firms involved in projects, the companies hiring them and the independent contractors, make the argument that rates are increasing, that business is becoming less competitive and that there has been a flight of expertise and talent from Ireland because of unfavourable tax treatment. I have been trying for some time to get a straight answer from the Department and the Revenue Commissioners as to whether they have a case. It seems they do. I am not advocating special treatment for anyone. I just want to know whether persons who are genuinely self-employed and incurring expenses as they move from one project to the next should, from a tax treatment point of view, be able to deduct them accordingly. That is the net issue. Perhaps the Minister of State might outline the position.
The taxation treatment of travel and subsistence expenses incurred by self-employed individuals is well established by provisions contained in tax law and principles laid down in case law. The general position is that travel expenses incurred in furtherance of business are deductible, whereas expenses incurred in travelling between work and home are not.
In regard to subsistence expenses, the general position is that expenditure incurred on food in the course of a business is not deductible.
In the case of expenditure incurred by self-employed contractors, unlike employees and office holders, self-employed contractors are entitled to a tax deduction in respect of all expenditure incurred by them wholly and exclusively for the purposes of their trade. As already stated, this includes travel expenses incurred for business purposes. In addition, whereas officeholders and employees must necessarily incur travel expenses and subsistence relating to that travel in the performance of their duties in order to qualify for tax-free reimbursement, there is no requirement that self-employed contractors must necessarily incur the expense. The necessity of the expense is irrelevant once it is incurred in furtherance of the trade, subject, of course, to the restriction on travel to a place of work, as I have already mentioned. In the case of a contractor engaged by an enterprise to deliver services at its place of business, that place of business will generally be the place of work of the contractor for the duration of the contract.
Therefore, on the basis that self-employed contractors are already permitted to take tax deductions for a wide range of business expenditure, and that the tax treatment of travel and subsistence expenditure is well established and based on long-standing principles, I do not propose to accept the amendment.
To be clear on the interpretation of law, the position is that the cost of going from their home to their place of work on a project is not allowable in line with the position for employees generally, who do not get any tax reduction or tax break for the cost of travelling to work, and that costs incurred while they are there, such as accommodation and subsistence, are not allowed either.
Is the argument that those expenses are not wholly and exclusively for the purposes of the service they are providing?
I shall read an additional note. I am aware that, as regards independent professional contractors, this is an issue the Deputy raised with the previous Minister, Deputy Noonan. We have received a submission from officials which followed on from a meeting they had with a representative organisation for this sector. One of the points raised in that submission was that it would perhaps be advisable also to consider a wider perspective than simply the expense issue raised here, in other words, the use of intermediary-type company structures, which are becoming more prevalent among the self-employed as a means of providing labour. A consultation process on the use of intermediary-type structures and self-employment arrangements was jointly launched by the then Minister for Finance and the then Tánaiste and Minister for Social Protection last year. The consultation invited submissions from interested parties on possible measures to address the loss to the Exchequer that may arise under arrangements of this nature.
I am pleased to note that I have just received the report which was informed by this consultation and which has been prepared by a working group of officials. The report will contribute to the debate on any potential measures to address these impacts. As the report looks at the wider issues of taxation and social welfare for this sector, I could not agree that we need another report before we consider this report. The Minister, Deputy Donohoe, looks forward to bringing the report to Cabinet very shortly and to publishing it very soon thereafter.
Does that report examine this issue?
It does. It is not published yet but the Minister will be bringing it to Cabinet.
Yes, it must go to Cabinet.
I will withdraw the amendment on the basis that the report is imminent. I will examine it and we will take it from there.
I move amendment No. 60:
In page 50, between lines 6 and 7, to insert the following:
“50. The Minister shall, within one month of the passing of this Act, prepare and lay before Dáil Éireann a report on options available for the introduction of a rate of 3 per cent betting duty for online and in-shop bets to be paid by the customer.”.
This is a hobby horse of mine. I had expected we would have seen progress in regard to an increase in the betting-----
The Deputy has a whole stable of hobby horses.
Yes, especially when we are talking about betting duty. I expected there would have been some progress. We read in the newspapers that Paddy Power Betfair hired Fergal O'Rourke and did a bit of lobbying with the Minister which put an end to the idea of increasing the rate above 1%. It was stated by the Minister of State's predecessors going back as far as the former Minister of State, Brian Hayes, that we would be better to get the 1% bedded in and then look at increasing the rate. We in Sinn Féin have argued for some time that this rate should increase to 3% and that the burden should be placed on the punter. This would actually be a benefit for small operators because, at the minute, they are absorbing the 1% and this would, therefore, increase their profitability by that amount. We looked at a 3% rate because we believe that is a rate the larger operators could not afford to absorb themselves. This would obviously bring in revenue which would properly fund the horse and greyhound fund but it would also provide money for addiction services and other services.
The amendment calls for a report to allow us to look at the options and to find how we could increase this rate over time. I think it is important that we have a signal, given I thought we were to move in this direction this year. I am not surprised at Paddy Power Betfair, and in fairness to Feargal O'Rourke, his company does professional work for Paddy Power Betfair and there is nothing untoward there, because that is what lobbying is. Nonetheless, I believe there is a requirement to do this.
Betting is also a vice. Many people do this, and I make a punt myself and I enjoy it, but it should be taxed appropriately. I can remember going to the bookies for my father - I was probably doing it illegally - and I would have been paying 10 pence to the pound, because that was what the punter had to pay at the time in tax. We are now talking about 3%, which is what is already captured online. I believe it is important to do this.
I propose to deal with amendments Nos. 26 and 60 together.
We are dealing with amendment No. 60 only.
Yes. The report explored gambling behaviour in Ireland, specifically the issue of problem gambling and its impact on the individual, the gambler’s relationships with social connections and the wider impact of problem gambling behaviour on community and society. The Betting (Amendment) Act 2015 brought remote bookmakers and betting intermediaries offering betting services in Ireland into the regulatory regime for the first time. At the same time, these operations were brought into the betting tax net, effectively doubling the revenue receipts from this source.
The 2015 Act was seen as a temporary measure pending the introduction of a wider Government approach to gambling under the gambling control Bill being prepared by the Minister for Justice and Equality. The Bill, as proposed, will update all existing laws on the regulation and licensing of gambling activities, including betting and gaming. It also includes a proposal to establish a social fund to assist in counteracting the ill effects for society, as well as for persons and their families, of irresponsible gambling. The scheme does not include the national lottery, whose activities are separately regulated under the National Lotteries Act 2013. Having been given special responsibility in this area, the Minister of State, Deputy Stanton, is working to ensure that legislation providing for the regulation of the gambling sector can be published at the earliest opportunity. Discussions with the Office of the Attorney General are under way.
With regard to Deputy Doherty’s amendment to prepare a report on increasing betting tax to 3% to be paid by the customer, my predecessor committed to reviewing the betting duty regime through the work of the Tax Strategy Group during the debate on last year’s Finance Bill. The Deputy will be aware that this report was published in the Tax Strategy Group paper earlier this year. As part of this review, which included consultation with stakeholders and interested parties, consideration was given to the impacts, benefits and drawbacks of both imposing betting duty on the customer and also of increasing betting duty rates. The review found, among other things, that applying a charge directly to the customer is problematic. Betting customers are price sensitive and such a change to taxing the customer could encourage a move towards alternative forms of gambling that are not subject to tax or to seek out unlicensed operators.
I might add that, as part of the process, Department officials met with various stakeholders, including the advocacy groups Problem Gambling Ireland and the Rutland Centre. I do not propose to accept these amendments.
I wish to add one point. I accept the Deputy's view in regard to problem gambling. From speaking with the Minister of State, Deputy Stanton, I agree the legislation he is seeking to have passed should be prioritised.
Everybody in the House should try to facilitate that. That would be a huge help. The Minister of State, Deputy Stanton, has done a large amount of work, much of it in his time as Chair of the justice committee.
The gambling control Bill is nearly as long in these Houses as I am. It has been going on and on.
Speaking about old provisions, the provision in terms of the betting duty was originally at 2%. When Fianna Fáil was in government it was in the legislation, if memory serves me right, but it needed a commencement order. It was commenced at 1%. The principle of the 2% is already there.
I am disappointed about this. I thought we were moving in the direction of increasing this tax. I am sure we will come back to it in due course. I will press the amendment.
Amendments Nos. 61 and 63 will be discussed together.
I move amendment No. 61:
In page 52, after line 32, to insert the following:
"54. The Minister shall, within 6 months of the passing of this bill, bring a report on the second reduced rate of VAT of 9 per cent and additional revenue that could be raised by bringing this rate back to 13.5 per cent.".
This proposal calls for a report on the reduced rate of VAT of 9% in the hospitality and tourism sector. There was speculation in advance of the budget that the reduced rate would be done away with. I would say the hospitality sector lobbied hard to ensure that it was not.
The total cost of this VAT reduction between 2011 and 2016 is €2.2 billion. It is a large amount of money. The projected reduction for the coming year, according to the answers we got back in preparation for the budget, is €491 million. This, in reality, ends up in the pockets of employers in a highly profitable low-wage sector. I have not seen any evidence to suggest that this kind of foregone revenue is worth the benefits that it brings because it ends up in the pockets of the already quite wealthy employers in this sector. I would like to hear the rationale for not changing it in the budget and for continuing this giveaway of approximately €0.5 billion a year as opposed to using that money directly to invest, including in regional development.
My amendment No. 63 is similar but more specific. My party does not argue for the 9% rate to revert to the 13.5% rate across the board, although there are quite legitimate arguments to do so in certain sectors. I can see the rationale, for example, for newspapers, to continue to enjoy a 9% VAT rate but I presume there is a reason that they are grouped together and that is why it has to happen.
What we have looked at is the cost of the hotel beds sector. This particular part makes up approximately 40% of the revenue lost, given that vacancy rates have increased, that we have high costs in terms of hotel accommodation, and that hotel accommodation here is among the dearest in Europe and enjoys the highest occupancy rates in Europe. We are conscious that this is not the case across the board. I come from west Donegal. The hotels in that area enjoy a short window of reasonable occupancy of between six and eight weeks. The rest of the time is really challenging for them. That said, the majority of the hotel beds are in Dublin where occupancy rates are the highest in Europe and prices have increased 6% in the past year. There is no need to subsidise that sector anymore.
We need to find ways to support other sectors in areas which are struggling, such as hotels in more rural, isolated areas. The Wild Atlantic Way is one way of doing that but there is a need for other interventions.
We need to learn the lesson, when we introduce a VAT relief or tax relief that works, to have the courage to start to taper it off. This, in my view, is the cycle of tapering it off. It is about producing a report looking at the implications which will catch all of the issues that I have addressed in terms of price, affordability, availability, the disparities in different regions, and isolating whether it is possible to introduce a relief for the non-hotel beds sector that has been identified but where the hotel beds rate would revert to the 13.5% rate. When I talk about hotel beds, I am conscious that those hotel beds also include guest houses and other such forms of accommodation.
The 9% reduced rate of VAT is reviewed annually in the context of the budget, including the costs and economic benefits and the additional revenue that could be raised by bringing the rate back to 13.5%. Revenue's most recent estimate for reverting the reduced 9% VAT rate back to 13.5% is that it would bring in extra revenue of €491 million. A 1% increase or decrease would yield or cost €109 million. The estimated cost to the Exchequer of the reduced 9% VAT rate, since its introduction in 2011 to end 2016, is of the order of €2.2 billion.
In terms of economic benefit, employment in the accommodation and food service sector has grown significantly since the introduction of the 9% VAT rate. Employment in these sectors has increased gradually each year since 2011, with an increase of over 35% in the period of Q2 2011 to Q1 2017 – an increase of 40,500 jobs in the sector. The rate of increase in employment in this sector was significantly greater than the overall level of employment increase. In terms of overseas trips to Ireland by non-residents, the number of trips increased from 6.5 million in 2011 to 9.6 million in 2016, an increase of 48%. However, these benefits could be attributed to other factors, such as the general and strong recovery in the economy and better economic performance in the target markets.
I decided in budget 2018 not to make any change to the 9% VAT rate as it continues to benefit the tourism sector throughout the country and any change in the rate could impact greatly on the tourism sector outside of the capital. I am also conscious of the impact the decline in the value of sterling is having on UK visitor numbers and how any increase in the VAT rate might exacerbate this.
While it is noted that hotel prices in Dublin continue to rise, this is partly a function of supply which is being addressed. Furthermore, because of EU fiscal neutrality constraints, different VAT rates cannot apply to different geographical areas in the country. In this context, VAT policy must be decided in the context of the national interest.
However, I accept the position of the Deputies that the 9% VAT rate must be subject to ongoing analysis. In this context I have asked my Department to undertake a comprehensive study of all aspects of the 9% VAT rate ahead of next year's budget. This will better inform any decision in relation to the reduced rate going forward. As this analysis will not be finalised within the timeframes suggested in the amendments, I cannot accept the Deputies' amendments but I can assure them that their concerns will be included in the study to be undertaken by my Department.
That is reasonable. That is what Sinn Féin was looking for in the amendment.
I would ask that the report be published in a timely fashion advance of the budget so that the budgetary committee would be able to examine views on the report.
The objective is to make sure that the information is available to everybody so the analysis can be concluded with an informed mind.
Does that mean it will be published in advance of the budget?
I will withdraw my amendment on that basis.
I wish to press my amendment.
I move amendment No. 62:
In page 52, after line 32, to insert the following:
“VAT treatment in respect of children’s footwear and clothes
54. The Minister shall within 6 months of the passing of this Act, prepare and lay before the Oireachtas a report examining the options for reviewing, in respect of children’s footwear and clothes, the size limits that are currently zero rated for VAT purposes subject to our obligations under EU law.”.
Ministers for Finance are very reluctant to discuss VAT on children's shoes and clothes.
There is a reason for that.
Yes, there is an issue to which I want to draw the Minister's attention. The legal position is that children's shoes and clothing are zero rated for VAT purposes. The definition is in relation to clothing. It is not exceeding the size appropriate to children of average build up to ten years of age and similarly for footwear. In practice, the administration of that by Revenue is that zero rating applies to the following criteria in relation to children's clothing, namely, sizes up to and including a 32 in. chest or 26 in. waist and children's footwear up to and including a size 5.5. Those sizes were determined in 1984 after consultation with clothing and footwear trade interests at both manufacturing and distribution levels.
There is an EU context in terms of the EU VAT directive and a zero rating can be drawn from the derogation under Article 110 of the EU VAT directive. What I have learnt so far from replies to parliamentary questions is that the position of Revenue and the Department is that the age cannot be increased, but the average sizes can potentially be changed, but only if there is evidence that the average sizes need to be increased.
The issue I wish to highlight is that if one takes footwear, for example, one has a certain price range up to size 5.5 which is the zero rating. Parents who go shopping will know this. A pair of zero-rated runners might be €40 but if one goes to size 6 the cost could be €60 or €70. The application of VAT to runners of size 6 or 6.5 does not explain the price differential. It is clear that either manufacturers, distributors or retailers are taking the opportunity afforded by the jump from zero rating to applying the standard rate to impose a very dramatic increase in the price of footwear and clothing once the zero rating no longer applies. There is a huge difference.
While the average might be at around age ten that a child would need size 6 footwear or in the case of clothing greater than a 26 in. waist or a 32 in. chest, there are many exceptions to that. Many children of that age require larger sizes. What we need to do is explore what flexibility, if any, there is for zero rating. The Minister said the reference to the age is cast iron and cannot be changed, but there may be some flexibility in the average size relative to the age. The rates were set in 1984 and I do not know if it has been reviewed since. It is a very important issue for many families and there is an element of exploitation in that when one goes beyond the size threshold where clothes or footwear are no longer zero rated, there is a significant jump in price across a wide range of clothing and footwear for children, which is not explained by the application of VAT at 23%. Is the Minister of State prepared to look at this and to see what can be done to help families dealing with this issue?
The VAT rating of goods and services is subject to the requirements of EU VAT law with which Irish VAT law must comply. Under Article 110 of the VAT directive, member states may retain the zero rates on goods and services which were in place on and from 1 January 1991, but cannot extend the zero rate to new goods and services after that date.
As the Deputy is aware, the zero rate of VAT applies to clothing and shoes for children and that is possible under EU VAT law because the zero rate applied to those goods on and from 1 January 1991. It is not possible under EU VAT law to extend the application of the zero rate by raising the age limit of children to whom the zero rate could apply in respect of articles of clothing and footwear.
Since the mid-1980s, Irish VAT law has defined children's clothing and footwear as that not exceeding the size appropriate to children of average build and foot size of ten years of age. That includes clothing described, labelled, marked or marketed as being for children under 11 years of age. The practical application of the measure is that zero rating applies to children's clothing of sizes up to and including a 32 in. chest, a 26 in. waist or 152 cm in height; and children's footwear up to and including a size 5.5 or 38. The sizes were determined in 1984 after consultation with clothing and footwear trade interests at both manufacturing and distribution levels.
While EU VAT law prohibits any increase in the age of children's clothing to which the zero rate applies, the practical application of the current zero rate to children aged under 11 can be refined where there is evidence that the size limitations have changed since the current criteria were agreed in the 1980s. Where the industry representing children's clothing and footwear has reason to believe that the current practical size measurements no longer represent children aged under 11 years of age, it should make a submission to my Department to that effect and we will engage with the sector. Accordingly, I cannot accept the Deputy's amendment.
Effectively, it is a matter of interpretation by Revenue if the average size to which the legislation refers has changed or if children have become bigger, which I expect is the case since 1984. That is more than 30 years ago and children are definitely bigger than they were. A submission must be made to Revenue or to the Department and we can pass it on or go directly to Revenue.
Where the Department says that EU VAT law precludes Ireland from extending the zero rate to new goods and services, as that would increase the divergence of VAT rates among member states, and it is not possible to extend the age limit, that sounds to me as if it is an interpretation. We are not adding in new goods to be zero rated. We are changing the size. I challenge the assertion that we cannot change the age. It is clear that we cannot add in new goods to the basket of zero-rated goods but that is not what I suggest. On what basis does Revenue and the Department say there is no flexibility on the age issue? I accept that the Minister has said the size can be changed.
There is flexibility on the size because children are bigger now than they were 30 years ago. That is a matter of interpretation by Revenue if there is evidence to support that, but I am told there is no flexibility on the age. The age was in place prior to the 1991 determination. That was set in the mid-1980s by previous Governments.
How do we set in train a review of the size threshold for footwear and clothing?
I assume there must be some form of academic report on the increased size of children at ten years of age now compared with what was the case in the 1980s. Evidence must be provided to Revenue to show that children are larger than 32 in. chest and 26 in. waist or 152 cm in height.
If it is acceptable I suggest that the Minister of State would share the contact details with me of the relevant officials and I will engage with them on how the issue might be addressed.
If that is acceptable to the Minister, I will withdraw the amendment on that basis and take up the issue directly with the Department.
I am happy with what has been suggested. I wish to add my support for the amendment and for the work to be carried out by the Department. That data must be collected from the Department.
Is it the case that one would have to prove that average shoe size for a ten year old had exceeded 5.5 or if 40% of five year olds were above that, it would not suffice? What is the threshold?
I do not know. I would assume there is a method by which they can calculate X number of children and the average size is 5.5. I will ask the Department to establish the methodology and try to get a note for the committee.
That would be helpful.
It is fairly fluid, to be honest.
My son is 11 and he wears a size 9 shoe. His trousers are a size 15, he has been wearing adult sizes for several years but not everyone is 6'3" like their father.
I have a nephew who was wearing size 12 shoes when he was 11 years.
There was consultation with trade interests over 30 years ago. Perhaps the Minister of State can dust-down the files and see how it was done then, who was consulted and if they still exist or what trade organisations now operate, and open a dialogue. I will engage with the officials.
I do not intend to move amendment No. 63.
I move amendment No. 64:
In page 53, to delete line 10 and substitute the following:
“(i) in paragraph (4), by substituting “2 per cent of stamp duty for the first €300,000, 4 per cent from €300,000 to €500,000, and 6 per cent from €500,000 thereafter on non-residential holdings” for “6 per cent”, and”.
The rate of stamp duty was increased to 6% in the budget. It had been 2%. This caught many people in the farming community and to be fair, the Finance Bill has rectified the situation where a father or mother hands down the land to a son or daughter.
We have tabled this amendment for 2% up to €300,000 along with two other amendments and another on consolidation. The latter relates to relief being available where farmers who have units of land that might be ten or 15 miles away may be in a position to sell it if another piece of land was for sale closer to them. The 2% stamp duty is not about farmers alone, it is pertinent to every Deputy who lives in rural Ireland. I asked about the rural-proofing of the budget. Every Deputy across the country is trying to encourage people in small towns, especially where many businesses have closed due to the recession, and the premises are left vacant. This is not a matter that concerns one party or group alone; everyone is trying to encourage people to open businesses and make towns more vibrant again. Added to that, there is a major problem within the farming sector where large operators who have the funds are able to mop up lands, while we are trying to encourage young people to take over the land. The idea of increasing the threshold to €300,000 at 2% is for the benefit of the many farmers who do not have the same flexibility with a bank as larger operators, when a small piece of land comes up near them. It would probably be the most land that a farmer would buy in their life. Looking at the trends for protecting a family farm, it is often the case that a farmer will need to buy an extra piece of land to consolidate the farm for the future. We must make this decision to protect family farms, that is why we propose that those farmers be given the opportunity along with other small businesses, such as hardware shop or other small shops which had closed. It is great to see some parts of the country improve, but there are still many areas with vacant buildings. This budget is telling them that they must pay and extra €8,000 or €12,000 for a building that we should be encouraging them to buy. Money is not that freely available and there are people who are reaching their thresholds.
There is significant confusion over consanguinity which I hope the Minister and the Department will clarify. There is supposed to be a document that says that if someone is buying land and the deposit was paid prior to the budget and the deal is finished by the year end, the purchaser is not liable for this. Will the Minister confirm this? The 2% figure is included in this amendment to protect the small operator. We do not stand for landlordism or multinationals, we are talking about the person. If we fail to solve this problem, it will be another kick for rural communities and small towns, against everyone's efforts. I am not having a go at everyone; people are trying across the board to ensure fair play and get businesses open. If something like this is not done, there will be further demise in rural Ireland.
I have also put my name to this amendment. Deputy Fitzmaurice tried on budget night to have the measure postponed until the end of the year, and I supported him. Many people have been caught by this for various reasons. Some blame auctioneers or solicitors, or in some cases the banks where they could not secure the finance in time, and those people should be given a window to conclude the transaction. They had made a deal, shaken hands and spat on their palms. This measure was a double whammy for them. It was unexpected and in the spirit of goodwill and behaving honourably they should be allowed to complete the deal without this blow.
Deputy Fitzmaurice has outlined the funding. We want to support the small businessman or businesswoman and the small family farm. The iar-Thaoiseach came to Edgeworthstown and announced there was nothing he would not do - I said it was like the Four Roads to Glenamaddy - to rejuvenate rural Ireland. This budget measure is doing the exact opposite, it is a blow to every town and village. Anyone on this committee from a rural area - I mean everywhere beyond the Red Cow - will be familiar with these villages and towns. I travelled to one last week in County Mayo, where I saw one closed building after the next. My own town of Clonmel was once thriving, the biggest inland town in the country, and now the middle of the town is devastated. We are trying to get people back into the town and rejuvenate it. Then there is a housing crisis. This measure is an obstacle to both of these problems. We could solve much of the housing crisis, although not all of it, and get a living town once more while giving a break to entrepreneurs that they could buy a premises that has been closed for the last five or ten years if it did not reopen as a business premises; someone else might buy it and put accommodation above or at the back. Several small businesses that were in the middle of the process have contacted me. Some of them thought that the solicitors had completed the transaction but they had not, since one almost has to live with a solicitor to make them do what they are supposed to; the longer it goes on for them the better. This measure is meanspirited.
It is against the spirit of everything we say - so much for rural-proofing. This is rural segregation. It is not that many of these family farmers wish to buy land, but they have no choice if they wish to stay in the production of milk, cereal or beef, especially given the vast amount of land required. It is different with poultry and other production. Farmers must try to expand their acreage - the Minister of State, Deputy D'Arcy, should understand that given where he comes from - to stay in the game or even to stand still. That is especially the case with the onset of Brexit. A number of young farmers have been brave enough to invest hugely in dairying and I am worried about them. If they see some land they wish to buy, this will be a hammer blow from the Government. They are already being hammered by the vulture funds. We tend to think those vulture funds are abroad but there is a home grown vulture fund in my area of Tipperary. It is buying every morsel of grass or seedling that grows. It is a land grab by a very famous conglomerate. That conglomerate has much prowess in the horse racing industry, which we welcome, and provides much employment. However, it has amassed up to 17,000 acres by now.
I put a proposal to the Minister for Finance for a land tax on any farm over 750 acres. Being from Tipperary I know how emotive the words "land tax" are but we must do something to ensure the survival of rural Ireland and to keep the schools open and the families, churches, teams and playing fields there. We must keep the place alive, not shut it down behind gates. We have submitted this amendment because we must give some type of solace, not blindfold these business people, entrepreneurs and families, tie their hands behind their backs and let them be sucked up by the vulture funds and just tossed to hell or to Connacht. It is to hell or wherever now. The vulture funds are not being touched.
We were very careful with our figures, with 4% from €300,000 to €500,000 and 6% from €500,000. We are not trying to be all things to all people. It is for a specific group of people. The value of property will rise in towns, even if there is not much business. We are going to hunt all our entrepreneurs into this city where one cannot get a bed for a night, a parking space or anything else. The recent OECD report found that 53% of all economic activity is taking place in the capital city. It is 15% or 20% higher than the figure for any other capital city in Europe. We are in the middle of Brexit and all the announcements and pronouncements of what we are going to do, along with all the hashtags and God knows what else. The last Taoiseach never had to hashtag but went out himself to tell what he was going to do. People do not want lip service. They want tangible efforts and in this case to be left alone.
This hammer blow was totally unexpected, especially with all the talk about rural proofing. The words "rural proofing" should be deleted from the Government's vocabulary because there is nothing rural proofing about this measure.
Amendment No. 69 is in this group of amendments so I wish to discuss that. My colleague, Deputy Martin Kenny, will discuss our other amendment, No. 66. Amendment No. 69 calls for a report to be laid before the Dáil which would include a risk assessment of the sustainability of stamp duty receipts from commercial property. This section of the Bill deals with the increase in stamp duty from 2% to 6%. Agricultural land is captured in that, and that is dealt with in amendment No. 66 and the amendment tabled by Deputies Fitzmaurice and Mattie McGrath.
I wish to speak on the risk associated with the figures the Minister is using in respect of commercial stamp duty. Commercial stamp duty was at the heart of the banking crisis in the last decade. It is important that commercial property is monitored. Sinn Féin supports an increase in commercial stamp duty so we do not have a problem in that regard. However, we are concerned about the figures the Department is relying on with regard to the income to be generated.
It is €376 million.
It is €376 million as a result of the 4% increase. This is based on the outturn for commercial property sales last year. Looking at a linear increase, it would double at 4% and so forth. We raised our concerns on the night of the budget and since then. It is interesting to listen to CBRE property consultants. They have insight into the current position of commercial property. They say the figures for the past three years have been inflated by the sale of assets by NAMA and the banks, which has generated an unusually large number of high value transactions. Obviously, one can take it that such transactions will not continue into the future. In addition, most property commentators are of the view that total investment spend volumes in the Irish commercial property market will be lower in 2017 than they were last year. Overall investments in the Irish commercial property market exceeded €1.3 billion in the first nine months of this year according to Jones Lang LaSalle Limited, JLL. JLL is of the view that volumes for 2017 will likely reach between €2 billion and €2.5 billion. If we accept the higher estimate of €2.5 billion, which would mean a significant increase in the last few months of this year, that is significantly lower than the €4.5 billion outturn in 2016. That is an expected €2.5 billion in commercial property transactions in 2017 against €4.5 billion last year.
It is risky to use what could be seen as dodgy figures to underpin the budgetary strategy. I raised this issue two days ago when we were discussing cuts in income taxes, the sustainability of the tax base and so forth. There is close to €400 million coming from this, but we must investigate whether the figures are robust. There are serious questions in this regard on a number of measures. First, the experts expect the outturn for this year to be a little over half of the outturn for last year. Also, the previous outturns were inflated because of sales by banks and NAMA. A major gap, therefore, could emerge in the budget very quickly.
I am seeking some technical information on property transactions. Property transactions take place equally throughout the year. My query is about the transitional arrangements in the budget. For the sake of argument, one twelfth of property transactions are still waiting to be stamped. The deed might be executed by the solicitor and a signed contract is delivered. People are just waiting to have it stamped. Heretofore, the Revenue online service, ROS, included a box which one would tick when filing one's return online. That would enable a person to avail of the reduced rate and, therefore, the person would get his or her certificate on that basis. However, that does not appear to be the case on this occasion.
The Revenue Commissioners issued two notes on this. First, where somebody has the contract signed and ready to go, if he or she wishes to get the deed stamped he or she must pay the full increase. He or she will get the refund back on the signing of the Finance Act. That is ridiculous. People are relying on bank finance in many of these transactions and one is asking the person to foot the cost of an additional 4% in tax for which the person is not liable. The second point made in the clarification is that one can avail of the reduced rate but the Revenue Commissioners will not give one the stamp certificate. If one does not have the stamp certificate one cannot get bank finance or register with the Property Registration Authority, PRA. In other words, it is not a solution. What can happen then is one's return could be late. If somebody's stamp duty return is late, because he or she cannot finance the additional 4%, will the Revenue Commissioners charge the person interest and penalties on that?
I wish to comment on amendment No. 69, the proposal to have a risk assessment of the sustainability of stamp duty receipts. At the beginning of the debate on the Finance Bill I said I was shocked that this increase in stamp duty was leaked.
It was leaked very comprehensively in all of the main national newspapers, particularly on the weekend before the budget, in a way that I have never seen with a tax measure before. The Minister for Finance suggested in his response that this was perhaps a method for getting a feeling for how the sector would react to this proposal. If there was in fact private information circulating beforehand, however, this means that a great many avoidance measures were undertaken back in the days before the measure came into effect. This further means that people who were not in this golden circle of potential recipients of information will have lost out on the double. When it comes to developing tax policy, this is extremely unfair. It is unfair to the person in a rural smallholding who did not have the information that this was about to come down the tracks. It is also unfair to the business that may have been undertaking an ordinary business transaction as it would not have had that advance information either. This information was, however, clearly shared with and broadcast to the so-called players in the property market. Any report on this should look at this matter because tax information released before the applicable date is of course enormously valuable information for deals that are in the pipeline. I know that the Minister was annoyed that this issue was raised, but it has been a fundamental principle of Irish tax policy for a very long time that there be no such circle of people with access to prior information on the details of the budget. It is important, then, that this be examined.
I come to second point. There was clearly a surge in property deals last year because of various deals that were undertaken and legitimate questions have been raised over whether or not that surge will continue. As this is the very pillar holding up the budget's arithmetic, we need to know the truth about the likely revenue outcomes from this tax. The whole manner in which this deal was conducted strongly indicates that there are within the circle of this current Government some people with more access to information than others.
I have a problem with statements like that.
It was published in the newspapers. Time will tell when we see it.
I ask the Chairman if I might respond to that.
The Minister of State will have the chance to reply in a minute.
My final point is this. I am sure that Deputy Peter Burke and a number of other members, Deputy Michael McGrath for instance, know that there are perfectly easy ways of avoiding this situation, firstly by selling a company's underlying shares - an option unavailable, incidentally, to the kind of small family farm holding that Deputy Fitzmaurice mentioned - or secondly through various devices for resting contracts rather than completing contracts already in the field. I do not care if the Minister of State is annoyed at this or not. All of this amounts to a significantly unfair potential advantage to very wealthy people with tax advisors who are part of a circle of information and are able to get access to it. The people mentioned in the various amendments, however, are highly unlikely to have that kind of access unless they get up very early on a Sunday morning to buy the newspapers and read the information there. The Minister can bet his bottom dollar that if that information was available to journalists on the Saturday or Sunday it was almost certainly available to selected individuals much earlier in the week, whether that was to test out his credibility or not.
What we are talking about here is an examination. Even if the proposals made by various Deputies here are not agreed to, the Revenue Commissioners as an independent body ought to look at this matter. There ought to be a fair deal for the small taxpayer, be he or she in rural Ireland or indeed running a small business in urban Ireland. There should be no one particular flow of information that might potentially benefit very well-off people with the wherewithal to afford extensive tax advice.
I welcome the opportunity to speak to amendment No. 66. As Deputy Burton has said, information is power, and in this case it would seem that the Minister for Agriculture, Food and the Marine did not have the information on the extension of stamp duty to farmers because he certainly came out the next day to say that this was not going to extend to them. We now find, of course, that it does and there was great dismay among many in rural Ireland who were in the process of buying and selling land to find that this 6% stamp duty was to clamped onto it.
Our proposal here is to reduce that stamp duty rate in line with what the Minister for Agriculture, Food and the Marine said the day after the budget. That is our demand here and we expect it to be met because at the end of the day the Minister for Agriculture, Food and the Marine represents the farming community. We all know that farm income in Ireland amounts to about half of the average industrial wage and that farmers are struggling to survive. Many of the people in this situation want to buy land so as to make their holding sustainable. Somebody holding 40 or 50 acres, for example, might decide to buy the extra 20 acres that becomes available beside them. When that farmer goes to the bank to buy it, however, a big issue now is whether or not he or she is going to have to pay this 6% stamp duty. This would clamp an extra charge onto the farmer that he or she might not have budgeted for at the outset.
The issues under discussion here have been very well rehearsed both here at committee and in the Dáil on budget day. The farming community is quite angry, not just at the increase but also at the fact that they appear to have been treated as little more than an afterthought in all of this. They are quite justified in their anger because it is very clear that this was not thought through or worked out properly. This duty was simply applied to commercial property without any thought for the impact that it might have on rural Ireland and on members of the farming community. Speaking from this perspective, then, I respectfully request the support of the committee in getting this amendment through.
We need to know why the transition arrangements were not set out in the financial resolution on budget night. I ask the Minister of State to address this if he has not done so. Deputy Burke set out quite well the consequences of not having such arrangements laid out in order that people might know where they stood. In the meantime the Revenue Commissioners have made further clarifications on this, which I welcome, but which do not far enough in dealing with this issue. There are two options: pay the 6% now and get a 4% refund at some future point without any guarantee of timing or mention of interest; or pay 2% now and not get the stamp certificate until the Finance Act 2017 passes into law sometime around Christmas and the purchaser complies with the proofs needed for the transition arrangements. There are very serious practical difficulties with this. I understand that in the past, generally speaking, transition arrangements were laid out in the financial resolution on budget night.
Can the Minister of State comment on the various proposals that have been set out in the amendments? Some involve a tiered approach whereby the larger transactions would attract the highest rate with a reduced rate for transactions at a lower value. Is it possible to cost such an approach and what would the implications be for the tax yield? Can the Minister of State clarify if this had been factored into the budget?
I welcome the changes made to consanguinity relief. These will go some, though not all the way towards dealing with people's concerns. We will shortly be debating amendments around farm consolidation in situations where there is already a capital gains exemption, and whether or not this might also be extended to stamp duty where the test of consolidation has been met.
I wrote to the Minister on this matter. I also raised the issues brought up today by Deputies Burke and McGrath. I know that the Minister has sent the correspondence on to the Revenue Commissioners but the outcome remains unsatisfactory. We understand that there are transitional arrangements in place. The problem, however, is that there are people who purchased land and for whom the transfer of that land went through on budget night.
They obtained finance to purchase a land holding and have no access to the additional €10,000 or €11,000 required to pay the stamp duty charge. The problem is that the individual, who may be one of many, does not want to be in breach of the law. Time is now running out and a decision needs to be made this week. I understand there is a period of four weeks from when the charge is generated to when it must be paid. I made the point that there should be an announcement from the Revenue Commissioners and the Government that no late fees or penalties will apply to individuals who do not pay the charge until the Finance Bill is through. I have not heard any clarification in that regard. The individual in question wants to comply completely with the law but must satisfy the bank. He or she cannot gain access to any other money and did everything he or she believed to be proper. He or she took out a loan for the value of the land and stamp duty. On the night when the transfer went through, the law changed.
I have about 400 notes coming at me from all different directions. We have had conversations previously about other taxes. The 2% stamp duty rate was the emergency rate. We had to reduce the rate to this to try to get the property market moving. The standard rate in times gone past was 6%. The rate has returned to that. It was based on a sustainable, broad tax base. The rate was as high as 9% prior to its being 6%.
We discussed earlier the VAT rate for the hospitality sector. There is always pain when taxes reduced during an emergency are returned to a sustainable level that puts the nation's finances onto a solid footing. Everybody in this room, and in both Chambers, wants the taxation system to be sustainable so we will not return to the cliff face we were at in previous years.
If it is acceptable, I will not address the matter of consolidation until speaking on amendment No. 67. I will read my notes and deal with each section in turn.
Amendments Nos. 64 to 66, inclusive, and 69 have been grouped together. Amendments Nos. 64 and 65 deal with the proposed amendments to the stamp duty rates charged on non-residential property. Amendment No. 66 is specific to agricultural land, and amendment No. 69 seeks a report within six months on the sustainability of stamp duty receipts from commercial property.
Budget 2018 includes an adjustment to the rate of stamp duty on non-residential property from 2% to 6%, projected to raise €376 million in 2018. This is based on estimates in Revenue's pre-budget ready reckoner, which showed that a 0.5% increase in the stamp duty rate applying to non-residential property would result in a €47 million increase in the yield. From a €376 million yield, a four percentage point increase was derived.
For non-residential stamp duty, this yield projection for 2018 is based on receipts for previous years, combined with an ongoing assessment of expected receipts by the end of the current year and for next year as well as impacts of earlier policy changes.
Following budget 2018, Revenue has updated the ready reckoner to a post-budget basis, taking account of budgetary changes and revised growth forecasts from my Department for 2018. The post-budget ready reckoner indicates that each 0.5% increase in the stamp duty rate applying to non-residential property would result in a €49 million increase in the overall yield. This would indicate that the estimated additional yield from the increase in stamp duty rate on non-residential property could be in the region of €392 million rather than €376. While the estimated yield makes an assumption of no behavioural change, basing receipts on 2016-17 levels and trends is the most reasonable option. The estimate also assumes current exemptions and other reliefs remain unchanged.
There has been some commentary regarding the estimated yield of €376 million. Most of the commentary has focused on the level of commercial property assets traded, with estimates putting this between €2 billion and €4.5 billion per annum. It is clear from Revenue data, however, that the levels of commercial and other non-residential property transactions significantly exceed that which has been estimated by some commentators. A simple extrapolation of the receipts for 2016, based on €256 million at a rate of 2%, implies transactions valued at over €12 billion in that year. Adjusting for significant once-off transactions in 2016, which were stripped out, receipts in the three-year period 2014 to 2016 were quite stable. For the nine months from January to September 2017, revenue receipts indicate a level of commercial activity in the order of €6.4 billion. This is significantly more than the estimates of certain commentators, and it is reasonable to expect this level of activity to continue.
The latest forecast from CBRE for new office supply in Dublin from 2017 to 2020 is 880,000 sq. m. This includes projects with planning permission granted and planning applications submitted, as well as projects under construction and recently completed, in 2017.
Naturally, tax receipts under all heads are monitored closely and reported on in the monthly fiscal monitor, which incorporates the Exchequer statement. Any developments are, of course, examined by my officials. This ongoing monitoring is more useful than a static report at some future time.
Amendments Nos. 64, 65 and 66 would result in a reduction in stamp duty yields that would have to be made up from other taxation measures in order to maintain overall budget arithmetic. I am informed that the estimated loss in yield under amendment No. 64 would be €162 million, while the estimate in respect of amendment No. 65 would be €105 million. The estimated reduced yield from Deputy Doherty's proposal, in amendment No. 66, would be €32 million.
In my budget statement I announced an extension of consanguinity relief for another three years and that the stamp duty rate applying under that scheme would be fixed at 1%. Consanguinity relief is availed of in transferring farms to younger family members and is particularly relevant where the transferee does not qualify for an alternative relief, such young trained farmer stamp duty exemption.
Following discussions with the Minister for Agriculture, Food and the Marine, I decided that in addition to extending the period of the relief and fixing the associated stamp duty rate at 1%, the age rule for the consanguinity relief will be removed. This means it will be possible for all gifts and sales of farmlands to closely related family members who do not qualify for the 100% exemption from stamp duty under the young trained farmer scheme to benefit from the consanguinity relief at a stamp duty rate of 1%. For the reasons I have outlined, I do not propose to support amendments Nos. 64, 65, 66 and 69.
There are a number of other issues with which I want to deal. Land purchase is not the only option. I am one of the farmers in the room, and there are others. Budget 2014 reflected the analysis of the release for the farming and agriculture sectors. There is a really substantial relief. Farmers have the opportunity to rent their land to other farmers tax-free for the income up to €40,000. This is really beneficial. Farmers enter an agreement to have a long-term lease, the lessor can get up to €40,000 for the duration of the lease. It is not correct to state nothing has been done for farmers who choose to expand. A tax-free sum of €40,000 is a lot of money over the period of the lease. That should not be ignored.
I want to touch on some of the issues mentioned. Commercial stamp duty at 2% yielded €252 million in 2016. At a rate of 6%, we are stating it will yield €376 million, representing an increase of €94 million based on an increase of 4%.
That will be 6% extra in 2018.
That is correct, but it will go from 2% to 6%, an extra 4%, so we are quite satisfied that the figures are accurate.
That is the yield.
The yield is €376 million at 6% extra.
Yes, extra. Large sales have been stripped out of the figures we have outlined in the statement on the previous years and we have taken an average over those years. If there is a spike in very large sales, those figures have been excluded to take an average over two years.
I accept that there is an issue with the transitional arrangements, and I accept Deputy Burke's point about what happened in the past and Deputy Pearse Doherty's point about the individual. I am pretty sure I was sitting beside the Minister when the point was raised about that individual. I know the Minister passed the matter directly to the chairman of the Revenue Commissioners. We expect a response from him pretty quickly.
I will give an undertaking to the committee that we will try to resolve the issues in the transitional arrangement. Deputy McGrath outlined two positions and he is correct. We will consider them between now and Report Stage, if that is acceptable to the committee, to try to improve the present circumstances. I am not giving any commitment that there will be any changes but we will consider it.
We agreed earlier that we would break at 5 p.m. I suggest that maybe we go on until 5.15 p.m. and break then until 6.15 p.m. Is that agreed? Agreed.
I absolutely reject the point made by Deputy Burton and others about a cabal. It is unfortunate that the Deputy is scratching in that barrel today because she made a nasty statement about me yesterday. I do not operate in that manner and I would not expect it from her.
To be clear on this, the Tax Strategy Group in July outlined that the stamp duty rate could be increased.
Not that it would be.
I read the newspapers the Sunday before the budget, like everybody else. There were dozens of options but people chose to say there was one in it and that was the one. I absolutely reject Deputy Burton's view on a cabal, a leak, a cosy few, and it should not be coming from her. She is an experienced politician and she should not make statements of that nature about anybody else.
The Minister of State is supposed to be part of an experienced Government and it should be organising the budget-----
Deputy Burton was in government for a long time too.
-----business in a way that the traditional confidentiality-----
It was confidential.
-----and secrecy about budget matters is maintained.
The Tax Strategy Group very clearly stated-----
That is all I am asking for as a standard.
-----that this was an option.
If the Minister of State and the Deputy want to have this discussion, they should go to the car park or outside the door. They are not going to have it in here.
Fine. I have said my say on this matter.
May I just reiterate my position briefly?
No. Deputies Fitzmaurice and Mattie McGrath had indicated they want to speak. Then we will come back to Deputy Burton.
I am not an experienced politician but I back Deputy Burton up because I was informed a few days after the budget that an organisation in Dublin was told on the Friday before the budget. That is what I heard and I claim that what I say is the truth.
In the line of what the Minister of State has said, we all need clarification on this transition period. There is no point coming out of a meeting and not knowing what the Minister of State has said. Is he saying that the 2% is applicable until the Finance Bill has been passed? A clear message needs to go out from this committee.
The Minister of State spoke about 850,000 sq. ft of office space in Dublin. We are fully in favour of this for the big guy who can afford to pay big money, and we had tabled a later amendment to tackle the vultures who are crippling this country and ordinary people right around, it but it was ruled out of order. However, that is for another day. We are talking about the small business person who is trying to survive in every one of our constituencies. It is like talking about the elephant and the mouse.
The Minister of State spoke about the time the country was in crisis. Some parts of the country, thankfully, have made some recovery. I am not being pessimistic but other parts have not made the same recovery. The Minister of State has spoken about hotels and I compliment him on what he has done for them in the VAT rate. We are reliant on the farming and small business communities to bring in revenue. Will the Minister of State and the Department give those people breathing space? Those amendments were tabled to make sure we hit the big operator who has plenty of money. We are not talking about the people who can get millions of euro. We are talking about what other Deputies outlined earlier, namely, people who have gone too far to get €10,000 or €12,000 more from a bank. This is a problem in rural Ireland and this Bill has not been proofed for rural Ireland.
If the Minister of State talks to auctioneers around the country he will find that land deals are at risk because the extra €10,000, €12,000 or €20,000 is not available. That is very clear. The Minister of State should read the articles the solicitors wrote. It is not just me saying this. We will stifle them. I am not talking about the guy who can get €40,000 worth of a tax rebate or allowance. I am talking about a person who does not have enough land to rent to get €8,000 or €10,000. I am not talking about highfalutin operators but about normal people in normal parts of rural Ireland who have family farms. That is what we are trying to protect, not the big operators.
I do not know whether the Chairman would say I am an experienced politician but I do not think I am a fool, thanks be to God. The Minister of State, however, must think that some of us are. He said amendment No. 64 would cost €162 million, and amendment No. 65 would cost €105 million. That comes to €267 million, I think. I agree with Deputy Burton and others. We saw the economy crash and the trauma that ended in. A big part of that was due to the errant stamp duty and where it went. I thought we had learned a lesson from that but one of the primary pillars in this budget depends on stamp duty. He might get it from the 800,000 sq. ft buildings here, and we welcome that, but where is the Government going to house the people who work in them? That is a crisis facing everybody. I know companies in Dublin that cannot get staff from England and abroad because they cannot afford to live here. One hand does not seem to know what the other is doing.
It is a scandal that amendment No. 68 has been ruled out of order. It proves there is a cabal.
There was an opportunity to level the playing field in terms of a distressed property being sold by financial institutions and vulture funds without being offered first to the borrower or family member at the same price as what is offered to the third party. A 50% land tax could be incurred on that if we wanted it, with all the Paradise Papers and scandals that went on. This was an opportunity to consider it and not rule the amendment out of order because of a charge being imposed on the people. The people my backside. We are trying to protect the people but it seems we are afraid to touch the fat cats. Banks are selling distressed loans at 17% of value in some places, or 20% or perhaps up to 30%. I have been in the Four Courts with unfortunate land owners or, even worse, householders or business people.
A fellow might have had a loan on a machine or tractor but these thugs are putting a tracer on the tractors so they can find out where they are and seize them. They are sold at a distressed price without being offered to the borrower. Many families, business owners and householders offered 70% of the loan value, with accountants backing up the figures and money put together by families, but that was not entertained because the Minister's friends in vulture funds wanted the money. It is murky and dirty business. We should be trying to balance the playing field and ensure there is some semblance of fairness. These people do not get it in the courts, and that is for another day. I am attending the High Court tomorrow with a family from Wexford, the Minister of State's county. Perhaps he should be down there to watch what is going on. It is a decent and well-respected family in County Wexford.
We have been told it will cost money but the Minister of State has no idea what it will cost. These sales will not go through. As clear as the nose on one's face, the auctioneers, solicitors and the hard-pressed young farmer or business person above all, who wants to get the loan for the transaction, will say that he or she cannot afford stamp duty. These people will not know if they are tax compliant. I do not know if there are representatives of the Revenue Commissioners here but we know well they will impose penalties and apply interest no matter what. All we want is a level playing field and we tried that with our amendments.
I welcome the continuity of the fixed rate for a year. I have no interest in the €40,000 mentioned by the Minister of State. They might all be big farmers in Wexford who lease the land. I am talking about keeping family farms alive. What the Minister of State suggests encourages people to go buy a yacht and get €40,000 in tax relief. I am talking about the unfortunate people trying to get the cow herd up, produce our milk and beef and bring about the wonderful exports we have. We need to keep them functioning in the jaws of Brexit and the €40,000 is no good to them. My understanding is that is for the people who want to retire, whether they are young or old.
The Minister of State is not sure of his ground and he is certainly wrong in saying there is not a cabal. There is a very strong and powerful organisation in this country that knew about this the Friday before the budget. It is the same organisation that will not stand to represent the farmers who are being terrorised by the vulture funds in my county and that of the Minister of State, as well as Kilkenny and Waterford. The racing syndicate is a vulture fund. We can welcome what it does and we congratulate Mr. O'Brien last week. It is not about him. We welcome that it is a flagship industry but it is time to stop when it is amassing 15,000, 16,000 or 17,000 acres. Without naming it, we know what organisation it is. It knew about the budget and there is a cabal. It is a dirty, rotten, stinking cabal and the little people do not matter. One would think it would not be so after all that has gone on, especially with the Paradise Papers this week. The Government will not control the banks that are selling the loans of people to the vulture funds. It gives them a clap on the back. I said before it is like rubbing butter on a fat sow's you-know-what. That is what it is like and the Government will not tackle them.
There was an opportunity with these amendments but they have been rejected. Worst of all is the rejection of amendment No. 68, which would have tried to level the playing field. It would have tried to get something from these Oliver Cromwell-type vultures. They are worse than Oliver Cromwell. They are faceless and unaccountable to anybody. They are destroying people's lives. We have seen suicides and marriages breaking up as well as stress, trauma and cancer because of this.
There is a third force and I have been in the Minister of State's county trying to defend farmers, not far from where he lives. People in this third force come in with balaclavas and Alsatians in the middle of the night, beating up people. We know what happened to Mr. Henry, one of the Minister of State's constituents. They beat him and his son, nearly killing them, on the side of the road. There were no charges. To make it worse, a garda who visited the scene two hours later let it go ahead. We went to meet the superintendent and all we got was cheek. How dare we act that way? Shame on the Garda Síochána for allowing that go on. It is a dirty, rotten, stinking cabal and it can be called nothing else. It will continue and the Government promotes the culture. The Minister of State might see the Taoiseach's hashtags and nice pictures but we do not see him standing outside banks with his hashtags and camera. He speaks about people on social welfare as cheats instead. It is time the Government copped on.
I propose to suspend the meeting for an hour.
The Chairman is upsetting me in my stride.
Shall we say 6 p.m.?
I call Deputy Martin Kenny to continue speaking on amendments Nos. 64 to 66, inclusive, and amendment No. 69.
I was talking about amendment No. 66. The Minister said this amendment would result in a loss of €32 million to the Exchequer if the stamp duty was reduced from 6% to 2%, which the amendment requests. I am quite confused about that figure because if 4% represents €32 million, it would suggest that there is approximately €800 million in agricultural land sales in the country.
That appears to be a serious exaggeration. Will the Minister clarify whether this figure relates solely to agricultural land and does not include land sold as sites for development and afforestation, categories which fall outside the definition of agricultural land? I expect the figure would be much lower if it were based on agricultural land sales only.
Amendment No. 68, which relates to stamp duty, has been ruled out of order. I have encountered a case involving a lady who was paying a mortgage on a commercial premises. When the mortgage was bundled up with others to be sold, she was refused permission to buy it at the same price for which it was subsequently sold to an investment fund. This is one of the great injustices done to be people who have paid their mortgage, whether on commercial or residential property. They are caught in a bind as their properties have been taken from them. I fully support the proposal in the amendment proposed by Deputies Mattie McGrath and Fitzmaurice to force banks and other institutions in control of mortgages and commercial property loans to offer these loans for sale to individuals who would like to buy them back and continue to pay for and own their properties?
The Minister of State, Deputy D'Arcy, responded in a general manner to the amendments. The Minister should feel free to comment on any of the specific points raised.
I will respond to the point raised by Deputy Martin Kenny as Deputy Fitzmaurice also raised it with me in the Dáil in the past week. If it is of assistance to the Deputies, I will meet them once the Bill has been completed to discuss this matter further. I understand the issue is being raised frequently in particular areas of the country and I am willing to meet the Deputies, as public representatives, to discuss it. While I obviously have an understanding of the issue, Deputy Fitzmaurice flagged to me his view that the process he described had accelerated and the number of cases being raised with him had increased. This issue has been causing difficulties for people for the past year or thereabouts. However, given Deputy Fitzmaurice's point that the number of cases was increasing exponentially, I am interested in having a meeting on the issue, albeit only with public representatives, to ensure I understand precisely what is taking place and whether there are any specific issues I need to be aware of. If the issue Deputy Fitzmaurice raises is similar to the one raised by Deputy Martin Kenny, both Deputies would be welcome to attend the meeting.
I thank the Minister for his offer of a meeting, which is urgently required. In the past three weeks, I have seen a tenfold increase in the number of actions taken by these faceless vulture funds.
Yes. Last week, I drove to Belfast to meet people because it is not possible to meet the vulture funds. Capita, a company which operates in different parts of Ireland, is dealing with the issue. To cite one case with which I dealt, a man who is suffering from cancer had a loan on which €33,000 was owed. The figure had increased to €40,000 when Capita bought the loan with interest. When I proposed repaying €25,000, Capita, in addition to refusing the offer, this morning informed me that it planned to proceed with a sale in the middle of negotiations. This is the type of reckless behaviour in which the vulture funds are engaging. While I thank the Minister for his offer of a meeting, the time has come to name these people in the Dáil, where Deputies have protection, and highlight what they are doing because this practice will result in a suicide.
I concur with the point Deputy Kenny made. The vulture funds bought these loans at a low rate. While we do not have a problem with them making money, we do not want people to be screwed.
Chairman: If the Minister does not mind, I would like to add to this discussion because the issue of vulture funds, which I intended raising towards the end of the meeting, is highly relevant and has been raised a number of times in this debate. The loans we are discussing are generally managed by regulated entities such as Capita. The problem people are experiencing is that it is virtually impossible to meet representatives of these organisations and difficult to obtain documents from them if one is putting together a paper trail to try to find a resolution. When one finally meets their representatives, the culture one experiences is shocking.
Young people in a bank have been conditioned to stonewall people and be stony-faced when meeting customers who are clearly experiencing mental distress as a result of the issue they are experiencing. It is not the case that they cannot negotiate but that Capita, on behalf of the various funds, will not negotiate, which is truly shocking. I have attended some of these meetings. I have also attended the Master's Court on a number of occasions. The most recent hearing I attended with a client had 138 cases listed for Allied Irish Banks. The Master of the High Court extended the time for dealing with these cases on foot of a request to do so by the banks. This only adds further anxiety and trauma to an already wrecked family. One must see this to believe it.
The same circumstances prevail in the registrar's court. Unfortunately, the banks are facilitating this practice because it suits them to do so. AIB and Bank of Ireland are serious offenders in this regard. I raised with the Minister a case involving the sale next Saturday of properties owned by the Morrissey family, which tells us everything we need to know. The family has sufficient funds outside AIB to purchase the properties in question. They also have a track record going back 100 years and are working a number of quarries. The families of approximately 100 families rely on them. Once the properties go to a public auction, the cartel in quarrying, namely, the three big powers in the quarrying game, will buy the quarries and close them down. As a result, the cost to local authorities of road construction and housing will shoot up because it is controlled by three companies. I do not say this lightly but because I have been observing this process in this committee for a long time.
In my correspondence with the Minister, I asked him to stop the sale of the Morrissey properties from proceeding and allow the family to buy them back at the value the banks say they are worth. This would protect competition in the marketplace, 100 jobs and the services and goods supplied into the quarries in question. That is all I am asking. I am not asking anyone to show favouritism but simply to recognise that there is a reckless cartel in the banks and vulture funds and among the large companies that are wrecking the lives of individuals.
This committee tried on more than one occasion to have various funds - the main players - appear before us to explain how they operate and what they do. They refused point blank to do so. I have dealt with these funds face to face and I am shocked by them. Capita, a regulated entity which is supposed to act properly, is even worse than the vulture funds. I am interested in hearing from Deputies Fitzmaurice and Mattie McGrath and perhaps other Deputies who have attended these meetings.
It is truly shocking that this bad culture of banking has been handed on intact to the next generation of young bankers. The country is suffering immensely for this reason. I am not being extreme about this or taking it to the edge. However, I have seen this often and, as a public representative, I find it disturbing when my efforts to do something about it in the Oireachtas fail. It was for this reason that I contacted the Minister directly on the Morrissey case.
That is a real example of what is happening. People appeal - they do not do so lightly - to individuals like me and the Minister to intervene. As we own the bank, the sale should be stalled while negotiations are ongoing. Deputy Michael Fitzmaurice has made a valid point. As negotiations are ongoing with Capita, on behalf of the vulture funds, such institutions escalate their efforts to sell properties to put pressure on the individual or individuals concerned.
I shall tell the Minister what I said in the Dáil. I shall not say it in an argumentative manner but will simply outline the facts. I sat in front of three representatives of Capita with the man at the centre of this case. Both he and his family are completely and utterly broken. They are suffering a terrible mental illness because of it. All the man can do is give Capita permission to sell every piece of property he owns. When the representatives asked him about the residual debt, he said he could not do anything about it because he did not have any money. Then a young girl seated behind the desk reached over and said to him: "I want you to ask your father, mother, brothers, sisters, community and credit union, but we want money, money, money." That is exactly the way she said it and I found it horrific listening to her.
I shall finish by saying I am disturbed by what the banks are doing and by what has happened between AIB and Morrissey's. I am sorry if I went on a little, but I had outline what was truly happening. It had to be said.
I apologise for my late return. I was almost finished when we broke.
I thank the Chairman for clarifying what happens on an hourly, daily, nightly and weekly basis. I have received telephone calls throughout the night about such matters. If the Minister does not know that this is true, I do not know where he is living and it is a case of hear no evil, speak no evil and see no evil. I can attest to the fact that this is happening and it is downright evil.
About receivers, I know of a well-respected family in the Minister of State's county who are having an unmerciful time in trying to sell everything. Deputy Michael Fitzmaurice and I have tabled amendment No. 68 which, unfortunately, has been ruled out of order. It would afford individuals, like the people I have mentioned - I know the business - an opportunity to be offered the property at the price it was offered for sale to a third party. The family in question have not been given an opportunity to buy back their business to keep it going and retain 100 jobs in the area. They have not been afforded an opportunity to keep their pride, dignity and mental health. The amendment has been ruled out or order. It seeks to ensure that when a property is sold for 30% of its value or even less, an appropriate charge would be applied. In this case the financial institution involved was offered between 70% and 80% of the asking price for the property, but it refused to sell it back to the original owners. It is a controlled takeover, which is totally unacceptable. I commented on this matter earlier when the Minister of State was present. Receiverships are happening. For proof all one needs to do is go to the courts where receiverships are registered or to the High Court tomorrow morning where one will be able to witness the case I have mentioned, with hundreds of others, for whom there is no refuge in the courts - none.
I advise the Minister that on 5 May we received a list provided by the Department of Finance of the various funds Ministers for Finance had met over time.
Obviously, these meetings were part of the business of the country and the Ministers for Finance had to meet them. In the future, when such meetings are being arranged, representatives of the funds, particularly those that are regulated, should be forced to come before this committee to ensure proper accountability and transparency. We have tried to get them to come here, but they have refused do so, yet they have access to officials in the Department of Finance. At some stage a balance must be struck between access and accountability.
- Burton, Joan.
- Kenny, Martin.
- Burke, Peter.
- Carey, Joe.
- Donohoe, Paschal.
I move amendment No. 65:
In page 53, to delete line 10 and substitute the following:
“(i) in paragraph (4), by substituting “2 per cent of stamp duty for the first €300,000 on non-residential holdings and 6 per cent thereafter” for “2 per cent”, and”.
We will not press this to a vote, but we are disappointed. We tabled these amendments in good faith and-----
Will Deputy Burton join the meeting some time? The Minister-----
I am sorry. I did not realise that we were back in public session. I thought that the committee was chewing over and analysing the missing vote on the Dáil side. I believe the Chairman will remember our former colleague from deepest south County Dublin.
I call Deputy Fitzmaurice or Deputy Mattie McGrath.
Is the Chairman in control of the meeting?
I am in control again.
Good man. I will finish. We are deeply disappointed, but we will not put this amendment to a vote because we will move it on Report Stage. These amendments were tabled in an effort to give some semblance of recognition of people's hardships. We also want to stimulate growth in small family farms and small businesses.
We will not put this to a vote, but we will table it on Report Stage when we will push it to a vote. This section is anti-rural. I have outlined the issue already. I appreciate that the Minister of State rather than the Minister was present for the discussion, but we have not received clarification around the ambiguity concerning the matter to which Deputies Burke, Martin Kenny and Michael McGrath referred, namely, people who have paid a deposit and are waiting to conclude the deal. According to Deputy Burke, people must pay money that they do not have to get money back. There needs to be clarification of what the situation has been since the night the financial resolutions were passed in the Dáil. There is a hold-up in property everywhere. People are waiting to see whether the Government will show common sense by allowing for 2% in respect of people buying small businesses, farms or land up to a certain threshold. In light of the vote, that will not happen, but I would like clarification.
Are the Deputies pressing or withdrawing the amendment?
We will not press it to a vote.
We will have a voice vote.
I move amendment No. 66:
In page 53, to delete line 10 and substitute the following:
“(i) in paragraph (4), by substituting “6 per cent for non-residential sales and 2 per cent for agricultural land sales” for “2 per cent”, and”.
We will press this amendment.
I seek clarification. Before we adjourned, the Minister of State indicated in general terms that he was minded to revert to us with some work on this area and to re-examine the matter. What does that indication mean? It would affect people's responses and attitudes to the proposed amendments on this Stage or Report Stage.
The committee discussed this matter with the Minister of State, Deputy D'Arcy, who outlined the two transitional measures that would be in place were the Bill enacted. The first relates to filing a return, paying stamp duty at 6%, receiving a stamp certificate and, on enactment of the Finance Bill, a refund being put in place. The second relates to filing a return through the e-stamping system and paying the stamp duty at approximately 2%, in which case a stamp duty certificate will not be issued. On enactment of the Finance Bill, Revenue will publish information on how a postponed stamp certificate can be obtained. We will discuss this matter further with the Revenue Commissioners.
I was hoping that the announcement of the second measure would address the difficulties that had been caused. The Revenue Commissioners have since informed me that neither interest nor penalties will be charged across the period during which this matter will be addressed. This is a further recognition of the issue by the Revenue Commissioners.
If I understand the Minister correctly, the decision has already been made and he is indicating it to us.
The Revenue Commissioners have-----
Sorry. The Revenue Commissioners.
The Revenue Commissioners have outlined the two measures that I just cited.
Those measures have been available on the Revenue Commissioners' website for a period, but perhaps not everybody has been aware of them. I want to inform members of them now. I believe some Deputies have been aware of the second measure because that has been communicated to individuals who have been dealing with the issue. The Revenue Commissioners have since informed me that interest or penalties will not be charged across the period in which this has been dealt with. I expect the Revenue Commissioners will amend their own communication accordingly to reflect that.
Deputy Burke may come in on this point, as he outlined it clearly. There is a problem with getting money from the banks if a person does not have the certificate. Will the Minister address that situation?
I made the point earlier that the second option that the Revenue Commissioners have issued is not workable in the 44 day period for stamping the document. This is because if a person is relying on the banks to finance the purchase of the property and is trying to draw down the finance to execute the sale and finish it off, the Property Services Regulatory Authority, PSRA, will not process the transfer, and the banks require this to be processed, if that person does not have a stamped certificate. The option is of little value.
The cleanest way to deal with this is to bring in another financial resolution to give legal effect to the transitional measures now in order that people can conclude the transaction, pay the 2% and get the transaction stamped. Otherwise there will be issues for people who are caught midstream between now and then. While Revenue may not levy any interest, interest could arise in commercial transactions with a delay of a couple of months.
I was not present for the earlier debate on the difficulties that this move has caused for people who were involved in transactions. I am also well aware of the reaction from owners and those who were involved in seeking to purchase more agricultural land. At different stages in the aftermath of dealing with this matter, I have put in place measures to try to deal with some of these issues. I did so in respect of consanguinity. I know that has not met every need there is, but I did put the measure in place to try to deal with the issue in ensuring that farm purchases could stay within the family to facilitate the intergenerational transfer of land.
The next matter that was then raised with me were issues that were occurring for transactions that were mid-flow. The Revenue Commissioners and I have been seeking to respond to the issue. This has led to the different options emerging. As Deputy Burke and others are raising a matter with the second option, I will raise the issue again with the Revenue Commissioners. I will see whether there is a way of engaging with the authority that would deal with it. I am very reluctant, and I do not know if it is technically possible, to go down the path of further financial resolutions in respect of the budget because of where we are with the Finance Bill, and it may not be possible to do so, but I will continue to look at any measure I can to deal with families who have been affected by this policy move. I will respond well before we get to Report Stage to the matter that Deputy Burke has now raised.
Time is of the essence. The sooner this is sorted out and something is clearly put in place in which people can have confidence, the better, as it is really what is necessary. The impression we got from the Minister of State, Deputy D'Arcy, was that he would come back with something sometime. It needs to be something very solid very fast. That is really the issue.
I have another point which I referred to when I spoke on amendment No. 66, which refers to agricultural land sales. It is suggested that €32 million will be lost as a result of reducing the proposed 6% tax to 2%, which suggests that there is €800 million in land sales. I am asking the question again. Does the figure of €32 million include land other than agricultural land, for example, sites, development land, and all of that? If it does, it is a considerably smaller figure we are talking bout if the amendment is passed.
I will have to revert to the Deputy on the second part of the question because I cannot answer it now. I will come back to him and find the base off which the figure was calculated. On his earlier point, I know that Deputy Kenny opposes what I have done even though it was contained in the Sinn Féin pre-election budget.
It was calculated into it.
It was not calculated.
The Sinn Féin budget stated non-commercial property, full stop.
There was a reduction made in respect of that.
The phrase was non-commercial property and that was included in the Sinn Féin pre-election budget. That being said, when this issue began to develop, I dealt with the consanguinity issue within a matter of days. A number of days after that, as the issue of transitionary mechanisms began to emerge, the Revenue Commissioners, principally, although I tried to play a role in it too, dealt with the different mechanisms that we could provide to deal with the matter. If I can make progress on the matter imminently, I will do it. However, I cannot tell the Deputy when because I do not know if I can do it, but I have approached every other matter and tried to make progress on them in good faith. I will do the same here.
I have now been conclusively informed that I will not be in a position to bring forward a further financial resolution on the matter.
How stands the amendment, Deputy?
It is being pressed.
Amendments Nos. 67 and 76 are related and may be discussed together.
I move amendment No. 67:
In page 53, between lines 23 and 24, to insert the following:
“(2) For the consolidation of farms a 1 per cent stamp duty should be applied.”.
This amendment deals with the consolidation of farms. Some farmers might have land ten, 20 or 30 miles away from the principal farm, perhaps through marriage or getting land from an aunt or an uncle. We would call them farms that are separated. In the interest of ensuring that they would not be travelling all over the country, there was stamp duty relief on the purchase of land near the principal farm and a farmer could sell land that was farther away to buy land nearer the home farm. From my understanding of this stamp duty relief, but I am open to correction and this is the reason I have tabled the amendment in this way, this relief was removed last December. In the west, people have parcels of land that were separated, and in fairness the relief to allow the farmer to consolidate his holding was a well-thought-out exemption. I wish to ensure that this stamp duty relief is retained and that is the reason I tabled this amendment.
I am speaking on amendment No. 76 in my name. The issue I am highlighting is the need to extend the existing exemption from capital gains tax that applies to certain farm restructuring transactions to the stamp duty that would apply to such transactions. In other words, the exemption that already applies to CGT would also apply in respect of stamp duty for farm restructuring. I, along with my colleagues, Deputies Jackie Cahill and Charlie McConalogue, attended a meeting with the Department of Finance and Revenue on this issue to make the case and to explain where we are coming from. The Minister will be aware of the existing relief, section 604B of the Taxes Consolidation Act 1997, in respect of farm restructuring and which has to be certified by Teagasc. It will be in place up to the end of 2019, and provided that certain strict conditions are met involving the sale and purchase of land to consolidate a farm holding, there is an exemption from CGT on the sale portion. We are advocating that there would be a consistency of policy and that equally stamp duty should not apply to the transaction, on either the sale side or the purchase side.
I framed it in the form of a report but I hope that we can get an amendment on Report Stage to put what we are looking for into effect.
I joined Deputy Fitzmaurice in tabling the amendment. The reason is obvious. Deputy Fitzmaurice mentioned that it happened in the west, but it happens in most counties where there are smaller, fragmented land holdings. The RSA had to withdraw its most recent diktat on the distance that certain tractors may travel because farms are fragmented. Land holdings can be 20 or 30 miles away from each other. It is an issue that needs to be addressed. It was a good enough, well thought-out scheme and it needs to be continued.
Amendment No. 67 in the names of Deputies Fitzmaurice and McGrath proposes that in relation to the consolidation of farms, a stamp duty rate of 1% would apply. Deputy Michael McGrath’s amendment No. 76 calls for a report into the possible extension of the current CGT relief for farm restructuring to encompass stamp duty also.
There was a stand-alone stamp duty relief that previously operated for the consolidation of farms. Section 81C of the Stamp Duties Consolidation Act 1999 allowed a farmer to claim relief from stamp duty where he or she sold and purchased land, in order to consolidate his or her holding, where both the sale and purchase occurred within 18 months of each other. The relief applied provided Teagasc had issued the farmer with a consolidation certificate in respect of the sale and purchase.
Deputy McGrath has raised this matter with me and I also engaged with his colleagues. I also acknowledge the interest in this among other colleagues, including Opposition Members and Deputies Peter Burke and Pat Deering. I intend to bring forward a Report Stage amendment to the Finance Bill to provide a stamp duty relief in circumstances where similar conditions would apply.
Capital Gains Tax Relief for Farm Restructuring is approved under the agricultural block exemption regulation 2014-2020, Commission Regulation No 702/2014. It may be the case that a measure to provide a stamp duty relief in circumstances where the conditions similar to those applying to the CGT farm restructuring relief or the previous stamp duty relief have been met will need to obtain similar state aid approval. It may therefore be necessary to provide that a stamp duty relief for farm consolidation transactions is subject to a commencement order. It is a matter of which I am aware, several colleagues have raised it with me and I intend to bring forward an amendment on Report Stage, and as such, perhaps in the circumstances the Deputies may wish to withdraw their amendments Nos. 67 and 76.
I thank the Minister for his reply. I welcome his response and because he said that he will address the issue, we will withdraw the amendments. We are thankful to him.
We thank the Minister but we need to know what his intention is and the kind of amendment he will bring forward before Report Stage. We will not press the amendments but we would appreciate clarification.
I thank the Minister for his remarks and welcome his intention to introduce an amendment on Report Stage. Has he framed it already or is it under consideration? Is he considering an exemption from stamp duty along the lines of the CGT exemption which applies for restructuring which meets the consolidation test or is it a lower rate of stamp duty? Has he considered what he hopes to bring in?
I have not done that yet. I will have to publish my amendments to deal with the matter raised by Deputy McGrath in advance of Report Stage. It will be published well in advance of Report Stage. I have not yet decided how we can do it. One of the reasons is because I must do it in such as way as to make it likely that I will get approval, if needed, to deal with state aid and I want ensure that whatever I bring in can do it most smoothly. I have not made a decision on how we will do it, but aim to do so over coming days.
Amendment No. 68 in the name of Deputy Fitzmaurice is out of order.
I referred to it earlier but I am very disappointed that amendment No. 68 was ruled out of order. It was an honest attempt to deal with some of the issues which the Chairman addressed not long ago. We are not dealing with it. The banks have run amok and they are engaged in daylight robbery. The Taoiseach makes strong expressions to convey his angst. Yesterday I asked him if the Minister for Finance had attended the EGM of AIB last week, and he was not able to tell me, maybe the Minister will tell me here.
The culture of "softly softly" is still there. The Minister himself said that all is not well there. We know that. This amendment was an effort to do two things. Against the vulture funds and our home-grown banks, and we now have a home-grown Tipperary vulture fund which is amassing land, this was to try to give a reasonable chance to the owners of distressed loans, whether in the cases of property, farms, family homes, buy-to-let or whatever, these were people who got up in the mornings, borrowed money, had a business and then the crash happened, which was not their fault.
Like the Chairman, I voted for that bank guarantee, and what did we get for it only two fingers from every hand; if there were three hands we would get two fingers from each of them the whole time. We as a Parliament encounter this but so do the people the banks are dealing with. We are talking about farms, households and machinery necessary to carry out business, where the debt was sold on for 17% of the value. There were often many payments made on the machinery, some of which was old. I referred to a man in Wexford who had been beaten up by thugs - his tractor was ten years old and worth about €12,000. Deputy Fitzmaurice and I put forward this amendment to see if we could get some respect and put some manners on these people so that, where they sold a distressed loan to a vulture fund, they would first have had to have offered the same conditions to the person to whom the loan was made - whether it was for a house, tractor, shop, or the farm. That is not unreasonable. What are we doing? We are terrorising our own people and crushing them into ground to give away loans to foreign - and now home-grown - vulture companies.
This was also a way of bringing in revenue. It beggars belief that loans can be sold off for that kind of money. We know what we paid to Europe for the money. They told us it was a bailout but it was a clean out. Here was an opportunity to stop this in its tracks and bring valuable revenue into State coffers, to allow a modicum of civilised living in rural and urban Ireland for families who will end up in hospitals, whether they are general or psychiatric. A wasteland is being created, and for what purpose? It is to line the pockets of fat cats and vultures. I cannot understand it and I will not understand it, nor will any reasonable observer. No one will accept it. I do not like using the word but it is the rape of our own people and land for which we fought dearly. My late father fought in the War of Independence as did many others to free our country, and for what purpose? To be owned by these cartels and cabals and vulture funds. That is what is happening and I am appalled that the Minister would not listen to our suggestion in the Rural Independent Group's pre-budget submission to introduce a land tax on farms of over 750 acres because that covers the vast majority of ordinary farmers. People with holdings above that are not interested in their neighbours, parish or community, the just want to amass large tracts. It happened recently in Wicklow where another stud bought a farm of land.
The stud industry is great. I have nothing against it. All we wanted was a level playing field or some semblance of one, but the Government failed to do that in the budget.
I welcome the Minister's commitment to meet Deputies to discuss the vulture funds in respect of which the amendments sought to introduce a high rate of stamp duty. I note and understand amendment No. 68 has been ruled out of order because a member of the Opposition cannot raise a tax on a person, but a company is not a person. We will redraft the amendment before Report Stage.
The Government has a large shareholding in Allied Irish Banks, AIB. I understand AIB proposes to sell loans worth up to €3.5 billion to vulture funds. I call on the Minister not to allow that to happen. It is only at the eleventh hour and the 59th minute that all of us here have finally got that people are in desperate need. We need to look at the iCare model, in conjunction with NAMA, to facilitate people to remain in their homes. Once a person's home is repossessed, his or her record is blackened forever. There are many people who borrowed €200,000 for whom the repayments are a stretch too far but they would be able to meet the repayments on a €130,000 loan. On the proposed sale by AIB of loans worth approximately €3.5 billion, it is very important that the Minister keep on eye on the process.
On the issues being discussed, during the downturn when everything was going pear-shaped, many solvent businesses that had been built up in communities over many years were conned into becoming involved in the property business. When that market went belly up, the banks seized many of these businesses, many of which were still operational and solvent. They became the fall-guy for what had happened in spite of the fact that the banks were as culpable as the borrowers in terms of the attractiveness of the deals offered by them. When everything went wrong, they walked away scot-free leaving individuals with the problem. There are many people whose businesses which they had built up in their communities over many years and which remained solvent were seized and sold by the banks. That was wrong. This venue is perhaps a calmer environment than the Dáil Chamber in which to plead with the Minister to do something to protect the businesses and communities that are suffering as a consequence of what is happening every day in the Commercial Court, the Master of which recently said that if AIB did not exist, that court would be out of business. It is dragging people through the courts every day. It is not right. There is the right and the left in politics but there is also right and wrong. This is not right; it is absolutely wrong.
I intend to bring forward amendments to this section on Report Stage to provide for a stamp duty refund scheme for commercial land purchases for the development of housing in view of the housing supply challenge facing the country. I referenced the scheme on the night of the budget. The refund will be subject to certain conditions, including a requirement that developers commence developments within 30 months of the land purchase. This is consistent with one of the objectives of the stamp duty rate increase, to achieve a rebalancing of activity from non-residential commercial construction activity in favour of residential activity. I will also be presenting an amendment on Report Stage designed to provide for certain anti-avoidance measures in connection with the upward adjustment to the rate of stamp duty on non-residential property.
I did not attend the EGM last week but an official of my Department did.
On the Minister's comments on stamp duty and the provision whereby on the sale of development or residential land the increase in stamp duty will not apply, what is the position on land purchased for the construction of a one-off house? Will the rate of stamp duty in that case be set at 2% or 6%?
We will be making provision to deal with that issue.
Will the rate in that regard be similar to that for multiple units?
I move amendment No. 69:
In page 55, between lines 12 and 13, to insert the following:
“57. The Minister shall within 6 months of the passing of this Act, prepare and lay before Dáil Éireann a report which would include a risk assessment of the sustainably of stamp duty receipts from commercial property.".
Amendments Nos. 70 to 75, inclusive, and 84 are related and will be discussed together.
I move amendment No. 70:
In page 56, line 17, after "section 463" to insert "or 1129".
These amendments seek to correct an omission from sections 59, 60 and 74 of the Bill, as published, in relation to a merger or division of companies carried out under the provisions of the Companies Act 2014. The Companies Act 2014 which was passed in June 2015 consolidated and amended all existing company law legislation. It brought major changes to company structures and streamlined procedures for the merger of companies. Most importantly, in terms of amendments being proposed, Chapter 3 of Part 9 of the Act provides for a statutory procedure that allows two Irish private companies to merge in order that the assets and liabilities of one transfer by operation of law to the other after which the former company, known as the transferor, is automatically dissolved without having to be liquidated. However, a merger can also involve a public limited company. Following publication of the Bill, it was noted that the references to the Companies Act 2014 were not sufficient to encompass mergers or divisions involving public limited companies. The amendments insert the relevant references for mergers and divisions in sections 59, 60 and 74 of the Bill.
I take the opportunity to flag that I may bring forward a further amendment to this section on Report Stage.
I move amendment No. 71:
In page 56, to delete lines 35 to 39, and in page 57, to delete lines 1 to 5 and substitute the following:
" "(11) In the case of—
(a) a merger undertaken in accordance with Chapter 3 of Part 9 of the Companies Act 2014—
(i) the resolution referred to in paragraph (a)(ii) of section 202(1)of that Act, in the case of a merger effected by way of the summary approval procedure (within the meaning of section 202 of that Act), or
(ii) the order made under section 480(2) of that Act, in the case of a merger effected otherwise than by way of the summary approval procedure (within the foregoing meaning),
shall be regarded as a conveyance on sale, or
(b) a merger undertaken in accordance with Chapter 16 of Part 17 of the Companies Act 2014, the order made under section 1144 of that Act shall be regarded as a conveyance on sale.".".
I move amendment No. 72:
In page 57, line 14, after "Part 9" to insert "or Chapter 16 of Part 17".
I move amendment No. 73:
In page 57, line 19, after "References" where it firstly occurs, to insert "in this section".
I move amendment No. 74:
In page 58, to delete lines 27 to 29 and substitute the following:
"(b) the successor company is a private company limited by shares, a designated activity company or a public limited company that is not an investment company within the meaning of section 2, 963 or 1001, respectively, of the Companies Act 2014.".
I move amendment No. 75:
In page 59, to delete lines 30 to 38 and substitute the following:
" "(11) In the case of—
(a) a merger undertaken in accordance with Chapter 3 of Part 9 of the Companies Act 2014—
(i) the resolution referred to in paragraph (a)(ii) of section 202(1)of that Act, in the case of a merger effected by way of the summary approval procedure (within the meaning of section 202 of that Act), or
(ii) the order made under section 480(2) of that Act, in the case of a merger effected otherwise than by way of the summary approval procedure (within the foregoing meaning),
shall be regarded as a conveyance on sale, or
(b) a merger undertaken in accordance with Chapter 16 of Part 17 of the Companies Act 2014, the order made under section 1144 of that Act shall be regarded as a conveyance on sale.".
I move amendment No. 76:
In page 60, between lines 1 and 2, to insert the following:
"61. The Minister shall within 6 months of the passing of this Act, prepare and lay before the Oireachtas a report on the possible extension of the Capital Gains Tax Relief for farm restructuring to Stamp Duty.".
I propose to withdraw this amendment as I want to rephrase it before Report Stage. I also signal that I propose to bring forward an amendment on Report Stage to deal with the issue of incentivising donations to charity in legacy, in other words, providing incentives through the capital acquisitions tax code.
Amendments Nos. 80 and 81 have been ruled out of order.
I move amendment No. 82:
In page 61, between lines 27 and 28, to insert the following:
"65. The Minister shall within 6 months of the passing of this Act, prepare and lay before the Oireachtas a report on the creation of a CAT incentive scheme for charitable donations made from people’s legacies and a CAT incentive scheme for the donation of shares to charity organisations.".
I have already discussed this amendment in conjunction with amendment No. 76 which I withdrew on the basis of the commitment given by the Minister. Amendment No. 82 relates to a capital acquisitions tax incentive scheme. As I indicated, I will bring forward a proposal on Report Stage.
With the Chairman's permission, I give notice that I may bring forward an amendment to section 58(2) on Report Stage.
What will it involve?
It concerns taxpayer confidentiality.
I have a note on the interpretation of VAT in reference to this section. Rather than go through it, I will give it to the Minister and perhaps one of his officials might respond to it. It is a significant issue but it is too late in the day to deal with it now. We might raise it on Report Stage.
Amendment No. 83 is in the name of Deputies Richard Boyd Barrett, Bríd Smith and Gino Kenny. As none of the Deputies is present, the amendment cannot be moved.
It is my intention to bring forward an amendment on Report Stage to section 72 to complete the ratification of a double tax agreement with Kazakhstan and a tax information exchange agreement with Macau.
Will there be anything in the provision related to Taiwan?
I understand an application was made and that it is now a question of agreeing the signatures. There was a UK example given as to who might be able to sign it.
Like the rest of our EU partners, Ireland adheres to the one-China policy. However, some EU member states have negotiated a tax agreement with Taiwan. My Department, in consultation with the Department of Foreign Affairs and Trade and the Revenue Commissioners, examined whether an agreement with equivalent effect to a tax agreement with Taiwan might be concluded in a manner consistent with our foreign policy. In the Finance Act 2015 an amendment was made to section 826 of the Taxes Consolidation Act 1997 to allow for agreements to be made with non-governmental entities such as Taiwan. This paved the way legally to concluding an agreement. Discussions on the next steps to be taken are ongoing with a view to identifying an approach that is acceptable to both countries. There have as yet not been formal negotiations between Irish officials and representatives of Taiwan.
Will the Minister provide a copy of the note for the committee?
My understanding is that 16 European countries have a trade representative in Taiwan, all of whom are based in an office that is financed mainly by the European Union. We should have somebody at that location which serves as a gateway to the greater Asian market, as well as offering an immediate market of 24 million people. If we are to improve our footprint abroad, as the Taoiseach has said he intends to do, this is a simple way of accessing the particular market without in any way damaging our relationship with China or contravening the one-China policy. It is for trade purposes only.
I move amendment No. 84:
In page 67, to delete lines 32 to 35 and substitute the following:
"'division' means a division undertaken in accordance with Chapter 4 of Part 9 or, as the case may be, Chapter 17 of Part 17 of the Companies Act 2014;
'merger' means a merger undertaken in accordance with Chapter 3 of Part 9 or, as the case may be, Chapter 16 of Part 17 of the Companies Act 2014;".
Amendment No. 87 is in the name of Deputy Joan Burton. As the Deputy is not present, the amendment cannot be moved.
Amendments Nos. 88 and 89 are related and may be discussed together.
I move amendment No. 88:
In page 94, to delete lines 5 and 6 and substitute the following:
At least 5 grams per 100 millilitres but less than 8 grams per 100 millitlitres
€16.26 per hectolitre
These amendments provide for a change to the rate of tax applying to sugar sweetened drinks as set out in Schedule 4 to the Finance Bill. The Schedule currently refers to the intended rate inclusive of VAT, but, in practice, this would then be subject to VAT. Therefore, it is necessary to amend the Schedule to include the rate of tax exclusive of VAT. The amendments will ensure the final rate of the tax amounts to 30 cent per litre for liable drinks with a sugar content of 8 g or more per 100 ml and 20 cent per litre for liable drinks with a sugar content of 5 g or more but less than 8 g per 100 ml after VAT is applied.
I move amendment No. 89:
In page 94, to delete line 7 and substitute the following:
8 grams or more per 100 millilitres
€24.39 per hectolitre
As the Bill has now completed Committee Stage, it is recommended that members submit amendments to the Bills Office without delay as Report Stage is scheduled to be taken in the week beginning Monday, 20 November.
Before we conclude, I wish to clarify a matter that was raised earlier today with reference to amendment No. 59 tabled by Deputy Michael McGrath. The Minister of State, Deputy Michael D'Arcy, indicated that the forthcoming report on intermediary-type employment would address the issue of the tax treatment of expenses for contractors. That is not strictly correct as it will, in fact, look at broader issues in the sector.
I thank the Minister, the Minister of State and the staff from the Department and the Revenue Commissioners for their assistance in recent days in helping us to deal efficiently with the Bill. The official standing in the corner has moved people in and out, on stage and off stage, with great efficiency and determination.
We have Report Stage yet to come which will involve a lot more work, but I take the opportunity to acknowledge the huge efforts made by Deputies on Committee Stage.
I thank the Minister, but will he stop the sale of Morrissey's at the end of the week?